Why Do UK Firms Repurchase Their Own Shares?

We examine the practice of share repurchases in the UK from 2000 to 2016 We find that an important regulatory reform in 2003, which relaxed previously strict rules about repurchases, was followed by a significant increase in repurchase activity by UK main-market listed firms We then examine the motivation for repurchases, testing several key hypotheses from prior literature. Our analysis of 6,228 firm years provides support, across both regulatory regimes, for both the free cash flow and the investment hypotheses. However, there are also changes in share repurchase motivations following the easing of restrictions. Important differences between UK and US payout practices are identified