Stock Repurchase in Turkey: Event Study Application

Share repurchases have become substitute for cash dividends. In a share repurchase program, a corporation buys back its own shares. It has been a common practice in the developed markets. However, the strict regulations in Turkey laws had not allowed the corporations to repurchase their shares until 2009. In 2011, the regulatory body in Turkey, Capital Markets Board has made it possible for all corporations listed on Borsa Istanbul Stock Market to carry out share repurchase programs. There are many motivations for share repurchases, but the undervaluation signaling is the driving motivation for managers to implement a share repurchase program. Signaling has two kinds of use by managers; it indicates an undervaluation for the current stock price in the market and sends a positive signal to correct for this undervaluation. The purpose of this thesis is to analyze whether share repurchase announcements has an effect on corporation’s stock prices and to test the semi-strong efficiency of Borsa Istanbul (BIST) by using the traditional event study methodology. The data contains 19 non-financial corporations and 27 observations. The results show that there is a positive market reaction to share repurchase announcements and the driving motivation is the undervaluation signal. However, the results also show that the BIST stock market is not semi-strong efficient and for the case of share repurchases, a market overreaction is observed. Keywords: Share repurchase, Borsa Istanbul, Event Study, Abnormal Return, Signaling, Undervaluation