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1. Introduction 
Share repurchase programs have become an important and global payout method in the past decade, as opposed to a negligible way of redistributing cash for US companies three decades ago. Share repurchases had risen to over half the value of cash dividend payments in 2005 in the European Union, with the Netherlands ranking second in total value of repurchase programs behind Great Britain (Von Eije and Megginson, 2007). The rise in repurchases started in the US, in 1982, after the Congress enacted a new rule that provided legal security for managers executing open market repurchase programs. In the 1990s, the trend of repurchasing own shares was picked up in other common law nations Canada and the UK, which had repurchase laws in place. In the late 1990s, countries such as Germany, France, Hong Kong and Japan, where share repurchases had been prohibited, followed. In the first half of this decade, other European countries eased or abolished their regulations and the total value of repurchases in the European Union increased from barely EUR 2bn in 1996, temporarily peaking in 2001 at EUR 30bn, to nearly EUR 60bn in 2005 (Von Eije and Megginson, 2007). 
Before examining the Dutch situation, consider some basic theory regarding share repurchases. There are essentially three options that firms use to repurchase shares: (i) the fixed-price tender offer, (ii) the Dutch-auction tender offer, and (iii) the open market repurchase program. In this study, the focus is solely on open market repurchase programs (henceforth „repurchases? or „repurchase programs?), representing roughly 90 per cent of international repurchase activity (Dixon et al., 2008). An open market repurchase program means that firms approve a program which provides the opportunity to repurchase stock over a specified time and buy shares on the open market. Open market share repurchases provide an advantage to the traditional dividend payout method: flexibility and the ability to time the market. Therefore, open market repurchase programs may last up to several years (Vermaelen, 2005). 
The two most prevalent motivations for a share repurchase are the signalling hypothesis and the free cash flow hypothesis. The first hypothesis implies that the company perceives itself as undervalued and wishes to signal better-than-expected future prospects (Dittmar, 2000). The free cash flow hypothesis originates from agency costs – conflicts of interest between management and shareholders. Share repurchases may reduce these agency costs by Master thesis R.G.P. van Wijk (280518) 6 
limiting the opportunity for managers to use, in their own self-interest, excess internal cash flows for non-profitable investment opportunities (Vafeas and Maurice Joy, 1995). 
In the US, where the majority of the research on share repurchases has been executed, an average cumulative abnormal positive announcement return of 2.3% to 3.6% is observed (Vermaelen, 1981; Comment and Jarrell, 1991; Ikenberry et al., 1995; Grullon and Michaely, 2004). Amongst others, Ikenberry et al. (1995) and Evans et al. (2000) find evidence for, respectively, the signalling hypothesis and the free cash flow hypothesis. Non-US research on abnormal announcement returns is limited and more ambiguous, ranging from an abnormal announcement effect of 0.9% in Canada (Ikenberry et al., 2000) to 6.0% in Germany (Zdantchouk and Hackethal, 2006). 
In the Netherlands, the total value of open market share repurchases over 2005 amounted to EUR 7.4bn. According to data from the Dutch Central Bureau for Statistics („Centraal Bureau voor de Statistiek? or „CBS?) this amount increased to more than EUR 15bn in 2008, a doubling in three years. Blue chips as Royal Philips, Royal KPN and ABN AMRO implemented large repurchase programs in 2005, thereby following Royal Dutch Shell?s example, which had pioneered in 2001 by starting a five year repurchase program. In the next four years, the lion?s share of AEX-listed companies executed repurchase programs. Companies as Akzo Nobel, ArcelorMittal and TNT executed large (>EUR 0.5bn) open market repurchase programs in 2008. Moreover, several mid- and small caps as Binckbank, CSM and Van der Moolen completed multi-million euro repurchase programs in the 2005-2008 period. Shell has been the most active company in the field of share repurchases over the past four years; it bought back more than EUR 10bn worth of A-shares since August 2005. However, only very few companies were implementing share repurchase programs before 2005. Due to several changes in the dividend tax regulation in 2005 and civil law thereafter, examined in section 3, the use of open market share repurchase explosively increased in the Netherlands. The last research on the repurchase announcement effect in the Netherlands is from Roosenboom et al. (2001). They find an average abnormal return following a repurchase announcement of 1.4%. Repurchase activity among listed Dutch companies has increased at a very fast pace and has become an important tool in implementing a company?s overall strategy, therefore, I arrived at the following research question and sub question: 
What is the effect of announcements of open market share repurchase programs on the stock price of AEX-, AMX- and AScX-listed companies? Master thesis R.G.P. van Wijk (280518) 7 
If an effect occurs, what (firm) characteristics and motivation hypotheses can explain this effect? 
I test whether a significant abnormal positive return occurs following a share repurchase announcement by means of a market-model event study as described by Seiler (2004). Furthermore, I employ a cross-sectional regression analysis to explore the effects of certain firm characteristics as market-to-book ratio and cash holdings to test the signalling and free cash flow hypotheses. New and national research on announcement effects of repurchase programs is valuable to all Dutch listed companies. The relevance of my research is based on two interlinked factors: 
1) the changes in the Dutch tax and regulatory environment, and the explosive increase of Dutch share repurchase programs since the most recent publication on stock price performance following share repurchase announcements in the Netherlands (Roosenboom et al., 2001), and 
2) the differences amongst US, UK, continental European and Dutch regulation and tax laws, making it hard to generalise international repurchase research to the Dutch situation. 

The main empirical finding is that Dutch firms primarily repurchase shares in order to signal undervaluation. Furthermore, limited evidence on the free cash flow hypothesis is found. Recent changes in tax regime and regulation of repurchases are a driver behind the recent increase in repurchase activity, but appear to play a minor role in explaining the abnormal return. The same accounts for international differences in institutional frameworks – they do not explain the international heterogeneity among abnormal returns. This thesis makes a contribution to the existing evidence of repurchases in two ways. First, it validates and refines the international findings. Second, it shows that the announcement effect has not changed dramatically since Roosenboom et al. (2001), but this thesis does contribute to a more in-depth understanding of the effect and its underlying drivers. This renewed understanding can help improve the decision-making process of managers and investors. 
The remainder of this proposal proceeds as follows. Section 2 first addresses the existing literature about the hypotheses regarding the motivations to repurchase shares, the empirical results on announcement effects from previous studies and the link between announcement effects and several hypotheses. Thereafter, in section 3, the tax and regulatory environment of Master thesis R.G.P. van Wijk (280518) 8 
repurchases in the Netherlands is examined. Following the Dutch situation, in section 4, the methodology, including data and sample, is presented. Section 5 reports the results of the event study and regression analysis, followed by the conclusions in section 6.