Managerial motivation and timing of open market share repurchases

Managerial motivation and timing of open market share repurchases There are two major mechanisms by which managers distribute cash to shareholders: through dividends and share repurchases. Historically, dividends have been the preferred method, but in recent years, share repurchases have become more popular, with more firms using repurchases than dividends to distribute cash. During the sample period of 2004–2006, 6.5 billion shares were repurchased for a total dollar volume amount of $222 billion. Using a unique dataset on actual monthly share repurchases, this paper investigates when and why managers repurchase shares in the open market. The paper finds evidence that firms which make repurchases are jointly timing their repurchases to perceived undervaluation and the presence of discretionary cash flow. In addition, the paper finds evidence which supports that (1) firms in competitive industries tend to repurchase less, (2) firms tend to substitute repurchases for anti-takeover provision adoption, and (3) firms attempt to manage earnings upward through the use of repurchases. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Managerial motivation and timing of open market share repurchases

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Publisher
Springer Journals
Copyright
Copyright © 2009 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-009-0145-8
Publisher site
See Article on Publisher Site

Abstract

There are two major mechanisms by which managers distribute cash to shareholders: through dividends and share repurchases. Historically, dividends have been the preferred method, but in recent years, share repurchases have become more popular, with more firms using repurchases than dividends to distribute cash. During the sample period of 2004–2006, 6.5 billion shares were repurchased for a total dollar volume amount of $222 billion. Using a unique dataset on actual monthly share repurchases, this paper investigates when and why managers repurchase shares in the open market. The paper finds evidence that firms which make repurchases are jointly timing their repurchases to perceived undervaluation and the presence of discretionary cash flow. In addition, the paper finds evidence which supports that (1) firms in competitive industries tend to repurchase less, (2) firms tend to substitute repurchases for anti-takeover provision adoption, and (3) firms attempt to manage earnings upward through the use of repurchases.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Sep 16, 2009

References

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