Wealth Transfers Resulting from Equity Transactions: Evidence from European Markets
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2018-08-21
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en
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This paper investigates the financial market anomaly surrounding equity repurchases and secondary equity offerings on European financial markets. Previous research shows that equity-issuing firms have subsequent negative abnormal returns, while firms that bought back shares had positive returns following that transaction. An alternative hypothesis for this observed effect is proposed by Titman, et al. (2004) in the abnormal investment factor. This research replicates the methodology of both Sloan & You (2015) as well as the model specified by Titman, et al. Results show that equity transactions are few and far between in European markets, compared to U.S. markets. No positive abnormal returns were found following share buybacks in either model. However, statistically significant evidence suggests that European acquirors in M&A deals issue additional overvalued shares as payment and negative returns subsequently follow. This is most likely in line with the ‘Q-theory of Mergers’.
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Faculteit der Managementwetenschappen