The influence of taxes and risk in open market stock repurchase transactions

Persistent Link:
http://hdl.handle.net/10150/289734
Title:
The influence of taxes and risk in open market stock repurchase transactions
Author:
Sneed, Joel Jerome
Issue Date:
2001
Publisher:
The University of Arizona.
Rights:
Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
Abstract:
This study investigates the impact of taxes and risk on firm's repurchasing decision and the subsequent market reaction to their announcement. I extend the repurchase literature by examining the tax and risk motivations for firms repurchasing their stock and increasing their borrowing, while controlling for the alternative explanations for repurchases. In a stock repurchase, a firm can quickly change the ratio of debt to equity in its capital structure, and, when combined with the positive change in debt, a setting where the firm is altering the balance of its capital structure in two similar directions is revealed. If there are both significant benefits and costs to debt financing, as suggested by trade-off theory, then firms should make financing choices that are related to these factors. The results revealed that firms increasing their borrowing as part of the repurchase transaction are significantly more under-leveraged, realize greater tax benefits, and have lower default risk than firms that are decreasing their borrowing. These findings are consistent across univariate analysis and multivariate logistic analyses that control for free-cash-flow and signaling explanations. Also, I show that the tax benefits for firms increasing their debt are positively related to the announcement period abnormal returns. Collectively, these results suggest that debt-financed repurchases are being used, in part, to re-balance firms' capital structures, and that the resulting tax benefits have a positive influence on firm value.
Type:
text; Dissertation-Reproduction (electronic)
Keywords:
Business Administration, Accounting.; Economics, Finance.
Degree Name:
Ph.D.
Degree Level:
doctoral
Degree Program:
Graduate College; Industrial Management
Degree Grantor:
University of Arizona
Advisor:
Dhaliwal, Dan

Full metadata record

DC FieldValue Language
dc.language.isoen_USen_US
dc.titleThe influence of taxes and risk in open market stock repurchase transactionsen_US
dc.creatorSneed, Joel Jeromeen_US
dc.contributor.authorSneed, Joel Jeromeen_US
dc.date.issued2001en_US
dc.publisherThe University of Arizona.en_US
dc.rightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.en_US
dc.description.abstractThis study investigates the impact of taxes and risk on firm's repurchasing decision and the subsequent market reaction to their announcement. I extend the repurchase literature by examining the tax and risk motivations for firms repurchasing their stock and increasing their borrowing, while controlling for the alternative explanations for repurchases. In a stock repurchase, a firm can quickly change the ratio of debt to equity in its capital structure, and, when combined with the positive change in debt, a setting where the firm is altering the balance of its capital structure in two similar directions is revealed. If there are both significant benefits and costs to debt financing, as suggested by trade-off theory, then firms should make financing choices that are related to these factors. The results revealed that firms increasing their borrowing as part of the repurchase transaction are significantly more under-leveraged, realize greater tax benefits, and have lower default risk than firms that are decreasing their borrowing. These findings are consistent across univariate analysis and multivariate logistic analyses that control for free-cash-flow and signaling explanations. Also, I show that the tax benefits for firms increasing their debt are positively related to the announcement period abnormal returns. Collectively, these results suggest that debt-financed repurchases are being used, in part, to re-balance firms' capital structures, and that the resulting tax benefits have a positive influence on firm value.en_US
dc.typetexten_US
dc.typeDissertation-Reproduction (electronic)en_US
dc.subjectBusiness Administration, Accounting.en_US
dc.subjectEconomics, Finance.en_US
thesis.degree.namePh.D.en_US
thesis.degree.leveldoctoralen_US
thesis.degree.disciplineGraduate Collegeen_US
thesis.degree.disciplineIndustrial Managementen_US
thesis.degree.grantorUniversity of Arizonaen_US
dc.contributor.advisorDhaliwal, Danen_US
dc.identifier.proquest3010188en_US
dc.identifier.bibrecord.b41611007en_US
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