Share Repurchase Purposes and Firm Value: Evidence from Repurchase Proposal Announcements in China’s A-share Market

Share repurchase is a fundamental institutional arrangement in capital markets. Distinct from the international practice of share cancellation following repurchases, a substantial proportion of share repurchases in China’s capital market are conducted for equity incentive purposes. Based on a sample of voluntary share repurchases initiated by Chinese listed firms from 2005 to 2022, this paper employs an event study methodology to examine how the equity incentive purpose of share repurchases affects the firm value. The findings indicate that: (1) the equity incentive purpose of share repurchases significantly weakens the market reaction to repurchase proposal announcements, exhibiting a value-destroying effect; (2) compared with repurchases for cancellation or market value management purposes, those for equity incentives causesignificantly weaker positive market responses; (3) the value-destroying effect is more pronounced for firms with prior regulatory penalties or a history of welfare-oriented equity incentives; (4) the value-destroying effect of equity incentive-motivated repurchases is more significant when firms exhibit lower repurchase information transparency, poorer earnings quality, or lower dividend payout ratios. These results suggest that the equity incentive purpose of share repurchases fails to effectively protect investor interests. Not only does it fail to generate the value-enhancing effects associated with post-repurchase cancellation, but it may also induce managerial rent-seeking behaviors, thereby damaging investor interests. The study provides insightful policy implications for improving the share repurchase system in China’s capital market.