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Does the Method of Financing Stock Repurchases Matter? Examining the Financing of Share Buybacks and Its Effect on Future Firm Investments and Value

Recent increases in stock repurchases among U.S. corporations coupled with a historically low cost of debt since the Global Financial Crisis has created media speculation that firms in recent years are paying for their expanding share buyback programs with debt. Repurchasing stock by increasing leverage, instead of using internal funds, implies that managers may speculate on current low interest rate environments at the expense of shareholders. Recent studies find that stock repurchases are associated with reductions in future firm employment and investments such as capital expenditures and research and development expenses. This study expands on prior studies by evaluating how debt-financed stock repurchases affect firm investment, investigating the likelihood of these repurchases in low interest rate environments and assessing the effects on firm value. Results confirm that, in recent years, debt-financed repurchases have increased substantially and the probability of debt-financed repurchases increases in the presence of low interest rates. This relationship is especially pronounced in the years following the Global Financial Crisis. Debt-financed repurchases are associated with small reductions in firm investment; however, these reductions are significantly less after adjusting for industry conditions. Finally, there is little evidence that the method of financing repurchases affects firm value nor does it increase a firm's operating performance.

Identiferoai:union.ndltd.org:unt.edu/info:ark/67531/metadc1404597
Date12 1900
CreatorsPeabody, Stephen Drew
ContributorsMantecon, Tomas, Liu, Yingchun, Wiley, Marilyn
PublisherUniversity of North Texas
Source SetsUniversity of North Texas
LanguageEnglish
Detected LanguageEnglish
TypeThesis or Dissertation
Formatvii, 104 pages, Text
RightsPublic, Peabody, Stephen Drew, Copyright, Copyright is held by the author, unless otherwise noted. All rights Reserved.

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