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An Economic Perspective (Model) on US Corporations and Treasury Stock

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  • James P. Gander

Abstract

Treasury stock and firm market value using a modified Tobins q are modeled by using a firm utility preference function and a quadratic constraint function. The choice of the quadratic form is based on an econometric analysis of the relationship of q to T, the amount of treasury stock held by the firm. US industrial corporations were sampled for the quarterly period from 1969 to 2013. There are 1,041 panels (firms) and some 32,494 overall observations. The statistical results were quite good. The firms optimum solution resulted in a q that is less than the maximum q given by the inverted U-shaped constraint. I argue that stockholders would prefer the maximum q.

Suggested Citation

  • James P. Gander, 2014. "An Economic Perspective (Model) on US Corporations and Treasury Stock," Working Paper Series, Department of Economics, University of Utah 2014_03, University of Utah, Department of Economics.
    • Handle: RePEc:uta:papers:2014_03
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    References listed on IDEAS

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    1. Eugene F. Fama & Kenneth R. French, 2001. "Disappearing Dividends: Changing Firm Characteristics Or Lower Propensity To Pay?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(1), pages 67-79, March.
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    More about this item

    Keywords

    Treasury Stock; Firm Market Value; Utility Preference Function JEL Classification: C40; C33; G30;
    All these keywords.

    JEL classification:

    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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