Financial constraints and share repurchases

Sheng-Syan Chen and Yanzhi Wang

Journal of Financial Economics, 2012, vol. 105, issue 2, 311-331

Abstract: We examine how the financial constraints of repurchasing firms affect their post-buyback performance. By every constraint measure we use, a set of constrained firms repurchase. They display significantly poorer post-buyback abnormal return and operating performance than unconstrained firms. Financial constraints are more important in explaining the performance of share buybacks for firms with high actual repurchase ratios. Constrained firms, especially those with high actual repurchase ratios, experience a significantly greater increase in post-buyback distress risk than unconstrained firms. Managerial hubris could explain why constrained firms buy back shares even if the buybacks do not improve shareholder wealth.

Keywords: Share repurchase; Financial constraint; Corporate liquidity; Managerial hubris (search for similar items in EconPapers)
JEL-codes: G32 G34 G35 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (79)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:105:y:2012:i:2:p:311-331

DOI: 10.1016/j.jfineco.2012.03.003

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