Financial constraints and share repurchases |
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Authors: | Sheng-Syan Chen Yanzhi Wang |
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Affiliation: | 1. Department of Finance, College of Management, National Taiwan University, Taipei 10167, Taiwan;2. Department of Finance, College of Management, Yuan Ze University, Taoyuan 32003, Taiwan |
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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. |
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Keywords: | G32 G34 G35 |
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