Taiwanese Firms’ Motives for Repurchasing Shares*

Shih-Chin Lee¹, Mei-Hui Lu², Jen-Chang Liu² 
(1. Department of Finance, Chihlee Institute of Technology, Taiwan
2. Department of Banking and Finance, Takming University of Science and Technology, Taiwan)

Abstract: Taiwanese firms must follow strict regulations when implementing repurchase programs. In this paper, the factors affecting a firm’s decision to announce a repurchase program are analyzed. A data set of 3,440 repurchase programs conducted by Taiwanese firms from 2000 to 2011 was collected. A repurchasing firm is characterized by a higher ratio of retained earnings to total equity, a lower leverage, and a larger size than an otherwise firm. The paper’s findings support the life cycle theory of payouts, as well as current theory relating to repurchases. Further, while there exists a complementary relation between dividends and repurchases in the OTC market, there is no such effect in the main TWSE market. Finally, no evidence supporting the free cash flows hypothesis was found; that is, there is no correlation between the ratio of cash to total assets and the decision to repurchase.

Key words: dividends; life cycle; payout policy; repurchases; Taiwan

JEL codes: G32, G35