Share Repurchases, the Clustering Problem, and the Free Cash Flow Hypothesis

Financial Management, Forthcoming

36 Pages Posted: 7 Aug 2008

See all articles by Chuan-San Wang

Chuan-San Wang

National Taiwan University - The Department and Graduate Institute of Accounting

Norman C. Strong

University of Manchester - Alliance Manchester Business School

Samuel Tung

affiliation not provided to SSRN

Steve W. J. Lin

Florida International University (FIU) - School of Accounting

Date Written: August 5, 2008

Abstract

We examine the market reaction to announcements of actual share repurchases, events that cluster both within and across firms. Using a multivariate regression model, we find that the market reacts positively to the events, indicating that these announcements provide additional information to that contained in the initial repurchase intention announcements. Further, the market response is especially favorable for firms with overinvestment problems as measured by Tobin's q, and is not related to signaling costs as measured by the size of the repurchase. Our findings generally support the hypothesis that share repurchases reduce the agency costs of excessive free cash flow.

JEL Classification: G12, G35, G31, G34, D82

Suggested Citation

Wang, Chuan-San and Strong, Norman Charles and Tung, Samuel and Lin, Steve W. J., Share Repurchases, the Clustering Problem, and the Free Cash Flow Hypothesis (August 5, 2008). Financial Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1203544

Chuan-San Wang (Contact Author)

National Taiwan University - The Department and Graduate Institute of Accounting ( email )

1 Sec. 4, Roosevelt Road
Taipei 106, 106
Taiwan
+886-2-33669782 (Phone)
+886-2-23638038 (Fax)

HOME PAGE: http://exp.management.ntu.edu.tw/zh-TW/Acc/teachers/147

Norman Charles Strong

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Samuel Tung

affiliation not provided to SSRN ( email )

Steve W. J. Lin

Florida International University (FIU) - School of Accounting ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
393
Abstract Views
2,235
rank
74,268
PlumX Metrics