The cost of financial flexibility: Evidence from share repurchases

Persistent Link:
http://hdl.handle.net/10150/617196
Title:
The cost of financial flexibility: Evidence from share repurchases
Author:
Bonaimé, Alice A.; Hankins, Kristine W.; Jordan, Bradford D.
Affiliation:
Univ Arizona, Eller Coll Management
Issue Date:
2016-06
Publisher:
ELSEVIER SCIENCE BV
Citation:
The cost of financial flexibility: Evidence from share repurchases 2016, 38:345 Journal of Corporate Finance
Journal:
Journal of Corporate Finance
Rights:
© 2016 Elsevier B.V. All rights reserved.
Collection Information:
This item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at repository@u.library.arizona.edu.
Abstract:
Over the last two decades, share repurchases have emerged as the dominant payout channel, offering a more flexible means of returning excess cash to investors. However, little is known about the costs associated with payout-related financial flexibility. Using a unique identification strategy, we document a significant cost. We find that actual repurchase investments underperform hypothetical investments that mechanically smooth repurchase dollars through time by approximately two percentage points per year on average. This cost of financial flexibility is correlated with earnings management, managerial entrenchment, and less institutional monitoring. (C) 2016 Elsevier B.V. All rights reserved.
Note:
Available online 11 February 2016. 36 month embargo.
ISSN:
09291199
DOI:
10.1016/j.jcorpfin.2016.02.002
Keywords:
Financial flexibility; Payout policy; Share repurchase; Earnings management; Corporate governance
Version:
Final accepted manuscript
Additional Links:
http://linkinghub.elsevier.com/retrieve/pii/S0929119916300189

Full metadata record

DC FieldValue Language
dc.contributor.authorBonaimé, Alice A.en
dc.contributor.authorHankins, Kristine W.en
dc.contributor.authorJordan, Bradford D.en
dc.date.accessioned2016-07-18T21:24:53Z-
dc.date.available2016-07-18T21:24:53Z-
dc.date.issued2016-06-
dc.identifier.citationThe cost of financial flexibility: Evidence from share repurchases 2016, 38:345 Journal of Corporate Financeen
dc.identifier.issn09291199-
dc.identifier.doi10.1016/j.jcorpfin.2016.02.002-
dc.identifier.urihttp://hdl.handle.net/10150/617196-
dc.description.abstractOver the last two decades, share repurchases have emerged as the dominant payout channel, offering a more flexible means of returning excess cash to investors. However, little is known about the costs associated with payout-related financial flexibility. Using a unique identification strategy, we document a significant cost. We find that actual repurchase investments underperform hypothetical investments that mechanically smooth repurchase dollars through time by approximately two percentage points per year on average. This cost of financial flexibility is correlated with earnings management, managerial entrenchment, and less institutional monitoring. (C) 2016 Elsevier B.V. All rights reserved.en
dc.language.isoenen
dc.publisherELSEVIER SCIENCE BVen
dc.relation.urlhttp://linkinghub.elsevier.com/retrieve/pii/S0929119916300189en
dc.rights© 2016 Elsevier B.V. All rights reserved.en
dc.subjectFinancial flexibilityen
dc.subjectPayout policyen
dc.subjectShare repurchaseen
dc.subjectEarnings managementen
dc.subjectCorporate governanceen
dc.titleThe cost of financial flexibility: Evidence from share repurchasesen
dc.typeArticleen
dc.contributor.departmentUniv Arizona, Eller Coll Managementen
dc.identifier.journalJournal of Corporate Financeen
dc.description.noteAvailable online 11 February 2016. 36 month embargo.en
dc.description.collectioninformationThis item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at repository@u.library.arizona.edu.en
dc.eprint.versionFinal accepted manuscripten
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