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Global Share Repurchases Over the Business Cycle
Using a new dataset of global repurchase cases, we analyze how repurchase patterns vary over the business cycle. During economic expansions, firms repurchase shares primarily to distribute excess cash. During recessions, firms reduce the volume of share repurchases but maintain the frequency of repurchase announcements. Announcements made during recessions are associated with a 2.7% decrease in repurchase size and a 3.8% decline in completion rates. These announcements yield a short-term return of up to 2.2%, but this gain is reversed in the long term, resulting in a one-year abnormal return of -4.6%. Our findings suggest that firms strategically use uncommitted open market repurchase announcements to signal to the market that their shares are undervalued, thereby boosting short-term stock prices during recessions. The extent to which firms engage in such strategies is influenced by financial constraints, analyst coverage, cash flow shocks, and institutional ownership.
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