Financial constraints and share repurchases
Journal
Journal of Financial Economics
Journal Volume
105
Journal Issue
2
Pages
311-331
Date Issued
2012
Author(s)
Abstract
We examine how the financial constraints of repurchasing firms affect their post-buyback performance. By every constraint measure we use, a set of constrained firms repurchase. They display significantly poorer post-buyback abnormal return and operating performance than unconstrained firms. Financial constraints are more important in explaining the performance of share buybacks for firms with high actual repurchase ratios. Constrained firms, especially those with high actual repurchase ratios, experience a significantly greater increase in post-buyback distress risk than unconstrained firms. Managerial hubris could explain why constrained firms buy back shares even if the buybacks do not improve shareholder wealth. ? 2012 Elsevier B.V..
Subjects
Corporate liquidity
Financial constraint
Managerial hubris
Share repurchase
Type
journal article