Does the new round of Company Law revision in China affect market reaction to share repurchase announcements?

ABSTRACT

Share repurchase becomes prevalent in the recent years in China, and China gradually changes its regulatory attitude from restriction to encouragement on it. In this paper, we present that the new round of Company Law revision in China reduces the signalling role of share repurchases; however, when the firms deliver good signals on dividends payout, the negative link between regulatory changes and market reaction to share repurchases becomes weaker. The paper sheds lights on the most up-to-date regulatory change in terms of share repurchases in China and its effect on market reaction to share repurchases.

KEYWORDS:

• Share repurchase
• market reaction
• regulatory changes
• dividends payout
• China

JEL CLASSIFICATION:

• G14
• G38
• G32

Highlights

1. We offer the most up-to-date evidence of China’s regulatory changes in terms of share repurchases and its effect on market reaction to share repurchases.

2. The new round of Company Law revision in China, changing its attitude from restriction to encouragement on share repurchases, reduces the signalling role of share repurchases.

3. When firms deliver good signals on dividends payout, the above impact of regulatory changes on market reaction to share repurchases has been weakened.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [Grant number: 71602010] and the National Natural Science Foundation of China [Grant number: 71602085].