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THE DETERMINANTS of INITIAL STOCK REPURCHASES

Author

Listed:
  • Luís Krug Pacheco

    (Faculdade de Economia e Gestão, Universidade Católica Portuguesa - Porto)

  • Clara Raposo

    (ISCTE, Business School)

Abstract

We present univariate and multivariate evidence to show that firms which engage in initial stock repurchases have some specific economic and financial attributes when compared to size-and industry-matched firms. We find that initial repurchase firms are younger, have lower leverage and operating risk, and higher payouts, operating cash flows, profitability and market-to-book than matched non-repurchase firms. Compared to secondary or “seasoned” repurchase matched firms, these initial repurchase firms are also younger and have higher cash, profitability, sales growth and market-to-book, as well as lower payouts, leverage and retained earnings. Therefore, we analyze the determinants and motivations that may explain why firms repurchase their own stock for the first time by studying the theoretical hypotheses found in the financial literature that are most important in explaining initial stock repurchases. The results support the free cash flow and risk reduction signaling hypotheses and the flexibility motivation for conducting stock repurchases. We do not find strong support for any other theoretical explanations of stock repurchases, such as undervaluation signaling, timing, tax effects and options and dilution hypotheses.

Suggested Citation

  • Luís Krug Pacheco & Clara Raposo, 2009. "THE DETERMINANTS of INITIAL STOCK REPURCHASES," Working Papers de Gestão (Management Working Papers) 05, Católica Porto Business School, Universidade Católica Portuguesa.
    • Handle: RePEc:cap:mpaper:052009
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    Citations

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    Cited by:

    1. Luís Krug Pacheco & Clara Raposo, 2009. "ON the TIMING of INITIAL STOCK REPURCHASES," Working Papers de Gestão (Management Working Papers) 06, Católica Porto Business School, Universidade Católica Portuguesa.
    2. Burak Pirgaip & Semra Karacaer, 2017. "Why Do Firms Repurchase Their Stocks? Evidence From An Emerging Market," Eurasian Journal of Business and Management, Eurasian Publications, vol. 5(3), pages 26-34.
    3. Cholifah Bahri & Mahsina S. E & Asmie Poniwati, 2017. "The influence of undervaluation, free cash flow, leverage and dispersion of ownerships toward company’s stock repurchase (An empirical study of Indonesia stock exchange public listed companies)," Journal of Administrative and Business Studies, Professor Dr. Usman Raja, vol. 3(5), pages 235-247.
    4. Inês Lisboa, 2017. "Financial Crisis And Capital Structure Determinants: A Study Of Portuguese Listed Firms," Economy & Business Journal, International Scientific Publications, Bulgaria, vol. 11(1), pages 481-498.
    5. Luís Krug Pacheco & Clara Raposo, 2009. "THE CAPITAL and CASH FLOW SOURCES and USES of INITIAL STOCK REPURCHASE FIRMS," Working Papers de Gestão (Management Working Papers) 07, Católica Porto Business School, Universidade Católica Portuguesa.

    More about this item

    Keywords

    Stock Repurchases; Initial Stock Repurchases; Payout Policy; Theoretical Hypotheses.;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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