Journal of Financial and Quantitative Analysis Vol. 39 No. 3 2004
Economic Sources of Gain in Stock Repurchases
Abstract
Previous studies offer a mixed understanding of the economic role of stock repurchases. This paper investigates three key economic motivations—mispricing, disgorging free cash flow, and increasing leverage—by evaluating cross-sectional differences in both the initial market reaction and long-run performance. The initial reaction provides some support for the mispricing story. However, subsequent earnings-related information shocks suggest that the initial market reaction is incomplete and that long-run performance may be informative. The long-horizon return evidence is most consistent with the mispricing hypothesis and, to some degree, the free cash flow hypothesis. We find little support for the leverage hypothesis.
- DOI
- 10.1017/s0022109000003987
- Volume
- 39
- Issue
- 3
- Pages
- 461-479
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref