Do share repurchases facilitate movement toward target capital structure? International evidence
•Under-levered firms are more likely to buy back shares right after share repurchase legalization.•Post-legalization repurchases facilitate firms’ movement toward target leverage, especially for under-levered firms.•The facilitating effect is stronger under lower repurchasing restriction, higher div...
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Published in | Journal of empirical finance Vol. 77; p. 101498 |
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Main Authors | , , |
Format | Journal Article |
Language | English |
Published |
Elsevier B.V
01.06.2024
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Subjects | |
Online Access | Get full text |
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Summary: | •Under-levered firms are more likely to buy back shares right after share repurchase legalization.•Post-legalization repurchases facilitate firms’ movement toward target leverage, especially for under-levered firms.•The facilitating effect is stronger under lower repurchasing restriction, higher dividend tax penalty, and lower financial constraint.
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. |
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ISSN: | 0927-5398 1879-1727 |
DOI: | 10.1016/j.jempfin.2024.101498 |