Academic journal article Accounting & Taxation

Ownership Structure and Stock Repurchase Policy: Evidence from France

Academic journal article Accounting & Taxation

Ownership Structure and Stock Repurchase Policy: Evidence from France

Article excerpt


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.

JEL: G35, G32

KEY WORDS: Stock Repurchases, Ownership Structure, Institutional Investors, Managerial Ownership


In this paper, we study the relationship between stock repurchases and ownership structure. Stock repurchases have greatly increased in France from euro1,682 million in 1998 to euro10,902 million in 2009. They have grown considerably since the law of July 2, 1998, which significantly relaxed the regulation of these operations. Thus, the initial French regulation controlling stock repurchasing, defined by the law of July 24, 1966, allows stock repurchases according to a very strict and rigid procedure. This law was significantly reformed on July 2, 1998. The new law relaxed the conditions under which companies can repurchase their own stocks. Because of the increasing use of repurchases, studies have examined the motives of these operations.

If distribution policies are intended to limit agency conflicts, they should be influenced by the stockholding structure (concentration and nature of stockholders), which is a decisive element of the agency conflicts. We observe little investigation into the relationship between ownership structure and company policies for repurchasing its own stocks. A point of particular interest in this research is to study the effect of property structure on repurchase policy in a context characterized by its concentration and where there are an excess of certain types of stockholders, including institutional investors or managers.

Our study considers a sample of 40 French companies listed at the CAC 40 index, during a five-year period from 2004 to 2008, including 200 observations. The final sample consists of 160 observations. This article is presented as follows. The first section underpins the literature. The second introduces the sample and methodology. The results are shown in the third section, and the last part concludes the work.


Two data types allow us to characterize ownership structure: ownership concentration and nature of the largest stockholders. Whatever the data source, various studies agree on the highly concentrated character of the stockholding in France and the importance of family capital. Institutional comparisons bring out the characteristic of continental Europe, in particular France regarding stockholding structure.

The Institutional Investors

Generally, institutional stockholders (banks, insurance companies, pension funds) hold only minority interests (less than 10%) in listed companies. Their role is still important as they define to a great degree the stock value of companies. They exert a big influence on the dynamics of financial markets and within the companies.

Agency costs may become considerable in the case of diffuse external stockholding due to the high costs of information and the heterogeneity of external stockholder interests. The presence of institutional investors can then have a direct effect on the agency costs resulting from separation between ownership and control. …

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