Companies’ reactions to negative stock price shocks in the European markets

Abstract

This study investigates the how public companies in the European setting react to significant negative movements in their stock prices and compare that to results from the US market as done by Seo & Chung (2017). Specifically repurchasing and debt retirement are studied and how their likelihood is impacted by different factors. It is shown that the pronounced share buyback activity seen in the US market following a stock price shock cannot be found in the European context. Evidence is also presented that when facing long-lasting shocks European firms do engage in debt retirement activity. The effects of cash holdings, leverage and companies home country financial market characteristics are studied but evidence is not strong enough to make conclusions.