Examining the Impact of Stock Buybacks on Operating Performance: A Study on Publicly Listed Banks Empirical evidence in North America and Europe between 2010-2022

Abstract

This thesis investigates the relationship between share repurchases and operating performance among publicly listed banks in North America and Europe during the period 2010–2022. The analysis examines whether buybacks contribute to improved financial performance, measured by return on assets (ROA) and return on equity (ROE), and whether this relationship was affected during the Covid-19 pandemic. By using panel data from 2010 to 2022 and applying fixed effects regression models, the study incorporates a sample of 37 large banks, segmented by region and adjusted for crisis-specific effects through interaction terms. The results indicate that repurchases are generally associated with improved performance, particularly in terms of ROE and that this effect is stronger among North American banks. These findings appear more consistent with the Free Cash Flow Hypothesis, suggesting that repurchases are used to manage excess capital and improve efficiency. However, the performance-enhancing effect of buybacks weakened significantly during the Covid-19 period. The study contributes to existing literature by extending the analysis beyond prior timeframes and highlighting the conditional effectiveness of share repurchases in the banking sector while also examining impact of the COVID19- shock. The results offer implications for financial managers and policymakers evaluating capital distribution strategies under varying macroeconomic environments.