Do share repurchases facilitate movement toward target capital structure? International evidence

Zigan Wang, Qie Ellie Yin and Luping Yu

Journal of Empirical Finance, 2024, vol. 77, issue C

Abstract: We use a new international setting to test and strengthen identification of the “target leverage” hypothesis in the payout policy literature. We conduct a quasi-natural experiment induced by staggered share repurchase legalization in 17 economies and analyze its influences on leverage dynamics. After controlling for other repurchasing motives, firms under-leveraged before legalization are more likely to buy back shares immediately after legalization. Post-legalization repurchases also facilitate firms’ movement toward target leverage, especially when firms are under-leveraged. This facilitating effect is stronger under lower repurchasing restriction, higher dividend tax penalty, and lower financial constraint.

Keywords: Share repurchases; Capital structure; Target leverage (search for similar items in EconPapers)
JEL-codes: G32 G35 G38 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:77:y:2024:i:c:s0927539824000331

DOI: 10.1016/j.jempfin.2024.101498

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