Share Repurchases − Riding the Wave of Uncertainty

We find that monetary policy uncertainty contributes to waves of share repurchases and hence plays a central role in influencing corporate payout policy. In our sample of European buyback transactions, the observed variation of the repurchase likelihood is particularly driven by movements in prevailing liquidity conditions and uncertainty about monetary policy. In times of high uncertainty about future financial conditions, firms have a precautionary demand for cash and therefore reduce repurchase activity. Correspondingly, leverage and credit spread variables negatively impact the repurchase likelihood. The relationship between repurchase probability and monetary uncertainty is more pronounced during the quantitative easing period, which indicates that expansionary monetary stimulus makes monetary policy an important source of uncertainty for firms' repurchase decisions.