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date: 14 November 2024

Stock Repurchases: Antecedents, Outcome, and Implicationslocked

Stock Repurchases: Antecedents, Outcome, and Implicationslocked

  • Abdul A. Rasheed, Abdul A. RasheedDepartment of Management, University of Texas at Arlington
  • Jenny GuJenny GuUniversity of Dallas College of Business
  • , and Greg BellGreg BellCollege of Business, University of Dallas

Summary

Since the early 1980s in the United States and the early 1990s in Europe and Asia, there has been a notable surge in the volume and frequency of share repurchases by companies. There are many different types of repurchases such as open-market repurchases, repurchase tender offers, privately negotiated repurchases, and accelerated share repurchases. Prior research on share repurchases has identified many different motivations identified in prior literature, such as undervaluation, tax advantages, flexibility, takeover defense, and optimal capital structure. In addition, prior research has identified a number of organizational characteristics that can cause a firm to repurchase their shares such as the compensation structure of the executives, managerial characteristics, and managerial entrenchment. A large number of empirical studies have investigated the factors that motivate repurchases and implications of repurchases for stockholders, creditors, executives, and the economy in general. The results of these studies suggest that any generalizations about the benefits of repurchases may be inappropriate and that both the positive and negative effects may be context specific. Stock buybacks are becoming common in countries other than the United States. Empirical research on repurchases in different countries suggests that the motivations, incentives, and effects of repurchases may vary based on not only firm-specific factors but also country-level institutional conditions. We identify several avenues for future research such as the potential for principal–principal conflicts, the implications of governance characteristics for repurchase decisions, different executions strategies, and application of new methodological tools.

Subjects

  • Business Policy and Strategy
  • Finance
  • International Business

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