The business cycle’s influence on share repurchases of the UK


  • Adhiraj Sodhi Greenwich Business School, University of Greenwich, London, UK
  • Cesario Mateus Business School, Aalborg University, Aalborg, Denmark
  • Irina Mateus Business School, Aalborg University, Aalborg, Denmark
  • Aleksandar Stojanovic Greenwich Business School, University of Greenwich, London, UK



Repurchases; macroeconomy; business cycle; frequency


The UK fully legalised open market share repurchases in 1981, and to our knowledge no study has investigated the business cycle’s influence on repurchase decision-making. We address this aspect and investigate the period 1985-2014. This is relevant as the business cycle factors impact the firm-specific variables such as cash flow, profitability, dividends and capital structure, and these factors traditionally influence repurchase decisions. This forms the paper’s theoretical intuition, and the empirical objectives test the business cycle’s influence on the decision to undertake a repurchase, and also its influence on repurchases values. The results find that the business cycle influences both the decision of undertaking repurchases and repurchases’ values, and this influence has aggregately remained positively associated with economic prosperity. Thus, the frequency of repurchase announcements by British firms is more probable during prosperous economic circumstances. The results also reveal that the repurchase-business cycle relationship witnessed a structural break in 1996:Q2, and the real difference following this break is the increase in the business cycle’s influence on the decision regarding repurchase values. The paper thus contributes to existing literature by directly testing the UK’s repurchase-business cycle relationship, and providing detailed empirical evidences that business cycle conditions strongly impact the repurchase decision-making.


Akhtar, S. (2017). Capital structure of multinational and domestic corporations – A cross-country comparison. Accounting and Finance, 57, pp. 319-349.

Al-Najjar, B. (2013). The financial determinants of corporate cash holdings: Evidence from some emerging markets. International Business Review, 22, pp. 77-88.

Al-Najjar, B. and Belghitar, Y. (2011). Corporate cash holdings and dividend payments: Evidence from simultaneous analysis. Managerial and Decision Economics, 32, pp. 231-241.

Andriosopoulos, D. and Hoque, H. (2013). The determinants of share repurchases in Europe. International Review of Financial Analysis, 27, pp. 65-76.

Andriosopoulos, D. and Lasfer, M. (2015). The market valuation of share repurchases in Europe. Journal of Banking and Finance, 55, pp. 327-339.

Antoniou, A., Guney, Y. and Paudyal, K. (2008). The determinants of capital structure: Capital market oriented versus bank oriented institutions. Journal of Financial and Quantitative Analysis, 43, pp. 59-92.

Atanasova, C.V. and Wilson, N. (2004). Disequilibrium in the UK corporate loan market. Journal of Banking and Finance, 28, pp. 595-614.

Bancel, F. and Mitto, U. R. (2004). Cross-country determinants of capital structure choice: A survey of European firms. Financial Management, 33, pp. 103-132.

Bangia, A., Diebold, F.X., Kronimus, A., Schagen, C. and Schuermann, T. (2002). Ratings migration and the business cycle, with application to credit portfolio stress testing. Journal of Banking and Finance, 26, pp. 445-474.

Bank for International Settlements. (2019). Central bank policy rates. [Online]. Available from:

Benati, L. and Goddhart, C. (2008). Investigating time-variation in the marginal predictive power of the yield spread. Journal of Economic Dynamics and Control, 32, pp. 1236-1272.

Berger, T. and Pozzi, L. (2013). Measuring time-varying financial market integration: An unobserved components approach. Journal of Banking and Finance, 37, pp. 463-473.

Bevan, A. and Danbolt, J. (2002). Capital structure and its determinants in the UK – A decompositional analysis. Applied Financial Economics, 12, pp. 159-170.

Blackstone, B. (2011). How economists in Europe define a recession. [Online]. Available from:

Booth, J.R. and Booth, L.C. (2003). Is presidential cycle in security returns merely a reflection of business conditions?. Review of Financial Economics, 12, pp. 131-159.

Bougheas, S., Mizen, P. and Yalcin, C. (2006). Access to external finance: Theory and evidence on the impact of monetary policy and firm-specific characteristics. Journal of Banking and Finance, 30, pp. 199-277.

Bouvatier, V., Lopez-Villavicencio, A. and Mignon, V. (2012). Does the banking sector structure matter for credit procyclicity?. Economic Modelling, 29, pp. 1035-1044.

Bowman, L. (2019). LIBOR Transition: Are markets ready for a $350 trillion white-knuckle ride?. [Online]. Available from:

Bozos, K., Nikolopoulos, K. and Ramgandhi, G. (2011). Dividend signalling under economic adversity: Evidence from the London Stock Exchange. International Review of Financial Analysis, 20, pp. 364-374.

Burns, N., McTier, B.C. and Minnick, K. (2015). Equity-incentive compensation and payout policy in Europe. Journal of Corporate Finance, 30, pp. 85-97.

Byrne, J.P., Fazio, G. and Fiess, N. (2012). Interest rate co-movements, global factors and long end of the term spread. Journal of Banking and Finance, 36, pp. 183-192.

Caglayan, M. and Rashid, A. (2014). The response of firms’ leverage to risk: Evidence from UK public versus non-public manufacturing firms. Economic Inquiry, 52, pp. 341-363.

Caglayan, M. and Xu, B. (2016). Inflation volatility effects on the allocation of bank loans. Journal of Financial Stability, 24, pp. 27-39.

Cattlin, R. (2021). FTSE 100 trading guide: Constituents, market hours and how to trade. [Online]. Available from:

Cesari, A.D. and Ozkan, N. (2015). Executive incentives and payout policy: Empirical evidence from Europe. Journal of Banking and Finance, 55, pp. 70-91.

Chadha, J.S. and Waters, A. (2014). Applying a macro-financial yield curve to UK quantitative easing. Journal of Banking and Finance, 39, pp. 68-86.

Coutts, K. and Norman, N.R. (2007). Global influences on UK manufacturing prices: 1970-2000. European Economic Review, 51, pp. 1205-1221.

Cribb, J., Hood, A., Joyce, R. and Keiller, A.N. (2017). Living standards, poverty and inequality in the UK: 2017. Institute for Fiscal Studies, July, pp. 1-89.

Dang, V.A. (2013a). Testing capital structure theories using error correction models: Evidence from the UK, France and Germany. Applied Economics, 45, pp. 171-190.

Dang, V.A. (2013b). An empirical analysis of zero-leverage firms: New evidence from the UK. International Review of Financial Analysis, 30, pp. 189-202.

De Graeve, F., Emiris, M. and Wouters, R. (2009). A structural decomposition of the US yield curve. Journal of Monetary Economics, 56, pp. 545-559.

Denis, D.J. and Osobov, I. (2008). Why do firms pay dividends? International evidence on the determinants of dividend policy. Journal of Financial Economics, 89, pp. 62-82.

Department for International Trade. (2016). UK remains number one investment destination in Europe. [Online]. Available from:

Dhanani, A. and Roberts, R. (2009). Corporate share repurchases: The perceptions and practices of UK financial managers and corporate investors. Edinburgh-Scotland: Institute of Chartered Accountants of Scotland.

Dhanani, A. (2016). Corporate share repurchases in the UK: Perceptions and practices of corporate managers and investors. Journal of Applied Accounting Research, 17, pp. 331-355.

Diebold, F.X., Li, C. and Yue, V.Z. (2008). Global yield curve dynamics and interactions: A dynamic Nelson-Siegel approach. Journal of Econometrics, 146, pp. 351-363.

Dittmar, A.K. (2000). Why do firms repurchase stock?. Journal of Business, 73, pp. 331-355.

Dittmar, A.K. and Dittmar, R.F. (2008). The timing of financing decisions: An examination of the correlation in financing waves. Journal of Financial Economics, 90, pp. 59-83.

Drobetz, W., Schilling, D.C. and Schroder, H. (2015). Heterogeneity in the speed of capital structure adjustment across countries and over the business cycle. European Financial Management, 21, pp. 936-973.

Ductor, L. and Leiva-Leon, D. (2016). Dynamics of global business cycle interdependence. Journal of International Economics, 102, pp. 110-127.

Eliwa, Y., Haslam, J. and Abraham, S. (2016). The association between earnings quality and the cost of equity capital: Evidence from the UK. International Review of Financial Analysis, 48, pp. 125-139.

FactSet. (2016). Buyback quarterly. [Online]. Available from:

Ferris, S.P., Sen, N. and Yui, H.P. (2006). God save the Queen and her dividends: Corporate payouts in the United Kingdom. Journal of Business, 79, pp. 1149-1173.

Fouweather, T., Gillies, C., Wohland, P., Oyen, H.V., Nusselder, W., Robine, J-M., Cambois, E. and Jagger, C. (2015). Comparison of socio-economic indicators explaining inequalities in healthy life years at age 50 in Europe: 2005 and 2010. European Journal of Public Health, 25, pp. 978-983.

FT. (2016). Global company bond defaults at highest level since 2009. [Online]. Available from:

Geiler, P. and Renneboog, L. (2015). Taxes, earnings payout and payout channel choice. Journal of International Financial Markets, Institutions and Money, 37, pp. 178-203.

Giglio, S., Kelly, B. and Pruitt, S. (2016). Systemic risk and the macroeconomy: An empirical evaluation. Journal of Financial Economics, 119, pp. 457-471.

Grullon, G. and Michaely, R. (2004). The information content of share repurchase programs. Journal of Finance, 59, pp. 651-680.

Huang, Z. (2003). Evidence of a bank lending channel in the UK. Journal of Banking and Finance, 27, pp. 491-510.

Huang, C-H. and Hseh, Y-S. (2021). Leverage dynamics over the business cycle: Evidence from Taiwan listed and unlisted firms. International Review of Economics and Finance, 74, pp. 373-391.

Imbs, J. (2004). Trade, finance, specialization, and synchronization. Review of Economics and Statistics, 86, pp. 723-734.

Imbs, J. (2006). The real effects of financial integration. Journal of International Economics, 68, pp. 296-324.

Issah, M. and Antwi, S. (2017). Role of macroeconomic variables on firms’ performance: Evidence from the UK. Cognet Economics & Finance, 5, pp. 1-18.

Jensen, G.R., Mercer, J.M. and Jonson, R.R. (1996). Business conditions, monetary policy, and expected security returns. Journal of Financial Economics, 40, pp. 213-237.

Jimenez, G. and Saurina, J. (2006). Credit cycles, credit risk and prudential regulation. International Journal of Central Banking, 2, pp. 65-98.

Johnson, M.T. (2013). The impact of business cycle fluctuations on graduate school enrolment. Economics of Education Review, 34, pp. 122-134.

Jones, C.I. and Klenow, P.J. (2016). Beyond GDP? Welfare across countries and time. American Economic Review, 106, pp. 2426-2457.

Kilincarslan, E. and Ozdemir, O. (2018). Institutional investment horizon and dividend policy: An empirical study of UK firms. Finance Research Letters, 24, pp. 291-300.

Korajczyk, R. and Levy, A. (2003). Capital structure choice: macroeconomic conditions and financial constraints. Journal of Financial Economics, 68, pp. 75-109.

Korteweg, A. G. (2010). The net benefits to leverage. Journal of Finance, 55, pp. 2137-2170.

Lee, C.I., Ejara, D.D. and Gleason, K.C. (2010). An empirical analysis of European stock repurchases. Journal of Multinational Financial Management, 20, pp. 114-125.

Lee. B.S. and Suh, J. (2011). Cash holdings and share repurchases: International evidence. Journal of Corporate Finance, 17, pp. 1306-1329.

Magkonis, G. and Tsopanakis, A. (2016). The financial and fiscal stress interconnectedness: The case of G5 economies. International Review of Financial Analysis, 46, pp. 62-69.

Mahajan, A. and Tartaroglu, S. (2008). Equity market timing and capital structure: International evidence. Journal of Banking and Finance, 32, pp. 754-766.

Martin, F.K. (2011). A decade of delusions: From speculative contagion to the great recession. 1st Edition, Hoboken-N.J.: John Wiley & Sons Inc.

Masuduzzaman, M. (2012). Impact of the macroeconomic variables on the stock market returns: The case of Germany and the United Kingdom. Global Journal of Management and Business Research, 12, pp. 22-34.

McGrattan, E.R. and Prescott, E.C. (2005). Taxes, regulations, and the value of US and UK corporations. Review of Economic Studies, 72, pp. 767-796.

McMillan, D.G. (2014). Stock return, dividend growth and consumption growth predictability across markets and time: Implications for stock price movement. International Review of Financial Analysis, 35, pp. 90-101.

Milberg, W. and Winkler, D. (2010). Financialization and the dynamics of offshoring in the USA. Cambridge Journal of Economics, 34, pp. 275-293.

Nickell, P., Perraudin, W. and Varotto, S. (2000). Stability of rating transitions. Journal of Baking and Finance, 24, pp. 203-227.

ONS. (2017). Ownership of UK quoted shares: 2016. Office for National Statistics, Statistical Bulletin, pp. 1-36.

ONS. (2018). Economy. [Online]. Available from:

Oswald, D. and Young, S. (2004). What role taxes and regulation? A second look at open market share buyback activity in the UK. Journal of Business, Finance and Accounting, 31, pp. 257-292.

Pasiouras, F. and Kosmidou, K. (2007). Factors influencing the profitability of domestic and foreign commercial banks in the European Union. Research in International Business and Finance, 21, pp. 222-237.

Pederzoli, C. and Torricelli, C. (2005). Capital requirements and business cycle regimes: Forward looking modelling of default probabilities. Journal of Banking and Finance, 29, pp. 3121-3140.

Pindado, J., Requejo, I. and Rivera, J.C. (2014). Economic forecast and corporate leverage choices: The role of the institutional environment. International Review of Economics and Finance, 51, pp. 121-144.

Rajan, R. and Zingales, L. (1995). What do we know about capital structure? Some evidence from international data. Journal of Finance, 50, pp. 1421-1460.

Rau, P.R. and Vermaelen, T. (2002). Regulation, taxes and share repurchases in the United Kingdom. Journal of Business, 75, pp. 245-282.

Renneboog, L. and Trojanowski, G. (2011). Patterns in payout policy and payout channel choice. Journal of Banking and Finance, 35, pp. 1477-1490.

Sekkel, R. (2011). International evidence on bond risk premia. Journal of Banking and Finance, 35, pp. 174-181.

Sonika, R., Carline, N.F. and Shackleton, M.B. (2014). The option and decision to repurchase stock. Financial Management, 43, pp. 833-855.

Uddin, M. and Boateng, A. (2011). Explaining the trends in the UK cross-border mergers & acquisitions: An analysis of macro-economic factors. International Business Review, 20, pp. 547-556.

Urom, C., Anochiwa, L., Yuni, D. and Idume, G. (2019). Asymmetric linkages among precious metals, global equity and bond yields: The role of volatility and business cycle factors. The Journal of Economic Asymmetries, 20, pp. 1-25.

Von Eije, H. and Megginson, W.L. (2008). Dividends and share repurchases in the European Union. Journal of Financial Economics, 89, pp. 347-374.

Wojewodzki, M., Poon, W.P.H. and Shen, J. (2017). The role of credit ratings on capital structure and its speed of adjustment: An international study. European Journal of Finance, 24, pp. 735-760.

World Bank. (2018). United Kingdom. [Online]. Available from:

Yin, L. and Feng, J. (2019). Oil market uncertainty and international business cycle dynamics. Energy Economics, 81, pp. 728-740.




How to Cite

Sodhi, A., Mateus, C., Mateus, I., & Stojanovic, A. (2023). The business cycle’s influence on share repurchases of the UK. Journal of Economic Analysis, 3(3), 38–68.