Deregulating the Open Market Stock Repurchase Restriction Around the World: The Effects on Firm Value and Behaviors

Abstract

We construct a unique collection of 38 countries’ deregulation laws that remove the restrictions of the open market stock repurchase. We utilize the yearly variation across the international market on the restrictions to explore the causal impact of the open market stock repurchase on corporate behaviors. We find that allowing repurchasing firms’ stocks on the secondary market decreases cash holding, capital expenditure, mergers and acquisitions and effective tax rate in developed markets, in developing markets and in general. However, the restriction removal has mixed effects on dividend payout policies and R&D expenditure. Overall, the deregulation increases firms’ return on assets and Tobin’s Q.