Motivation for Repurchases: A Life Cycle Explanation

Woan-lih Liang*, Konan Chan, Wei Hsien Lai, Yanzhi Wang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

6 Scopus citations

Abstract

This study examines the motives for share repurchases. Whereas most prior research points to either the signaling or free cash flow hypothesis, we find that the motives for repurchases differ depending on the firm's life cycle stage. Specifically, we find that a firm in the growth stage tends to announce a repurchase program to signal its undervalued stock whereas a firm in the mature stage is prone to buy back shares to dispense excess free cash flow. We also find that the market reaction to repurchase announcements corroborates this life-cycle argument.

Original languageEnglish
Pages (from-to)221-242
Number of pages22
JournalJournal of Financial Services Research
Volume43
Issue number2
DOIs
StatePublished - 1 Jan 2013

Keywords

  • Free cash flow
  • Life cycle
  • Repurchase
  • Signaling

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