Journal of Corporate Finance Vol. 26 2014
Capital structure, equity mispricing, and stock repurchases
Abstract
We evaluate motives for share repurchases using a unified framework where a firm has a target capital structure and has equity that can be mispriced. We document that capital structure adjustments are a value-increasing motive for repurchases and that the extent to which adjusting capital structure through a repurchase creates value depends on the undervaluation of the firm. Underlevered and undervalued firms enjoy the greatest economic gains from a repurchase, as evidenced by the stock price reaction to the repurchase announcement, and these firms are more likely to announce a share repurchase program.
- DOI
- 10.1016/j.jcorpfin.2014.03.007
- Volume
- 26
- Pages
- 182-200
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref