Motivation for Repurchases: A Life Cycle Explanation
Journal
Journal of Financial Services Research
Journal Volume
43
Journal Issue
2
Pages
221-242
Date Issued
2013
Author(s)
Abstract
This study examines the motives for share repurchases. Whereas most prior research points to either the signaling or free cash flow hypothesis, we find that the motives for repurchases differ depending on the firm's life cycle stage. Specifically, we find that a firm in the growth stage tends to announce a repurchase program to signal its undervalued stock whereas a firm in the mature stage is prone to buy back shares to dispense excess free cash flow. We also find that the market reaction to repurchase announcements corroborates this life-cycle argument. ? 2012 Springer Science+Business Media, LLC.
Subjects
Free cash flow
Life cycle
Repurchase
Signaling
SDGs
Type
journal article