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Ownership Structure and Stock Repurchase Policy: Evidence from France

This article studies the relationship between ownership structure of French companies and their stock repurchase policy. According to financial theory, the presence of institutional investors negatively influences repurchasing policy because the preference of these investors is to reinvest in projects. The theoretical hypotheses of interest alignment and entrenchment have been used to justify the relationship between management stockholding and repurchasing policy. We tested the validity of our hypotheses on a sample of 40 French companies using data from 2004-2008. The results show that institutional investors positively affect the repurchase because institutional investors can control managers by forcing them to repurchase stocks to pay their excess cash flows. Moreover, we found a positive relationship between management stockholding and the repurchase. This finding is explained by the power of entrenchment from the repurchase that can raise the stockholding percentage of managers who repurchase the stocks.