The Persistence and Consequences of Share Repurchases

49 Pages Posted: 4 May 2021 Last revised: 14 Feb 2022

See all articles by Sadok El Ghoul

Sadok El Ghoul

University of Alberta - Campus Saint-Jean

Omrane Guedhami

University of South Carolina - Moore School of Business

Hyunseok Kim

Sungkyunkwan University, School of Business Administration, Students

Jungwon Suh

Sungkyunkwan University (SKKU)

Date Written: April 30, 2021

Abstract

Firms primarily use cash flow to finance increasingly persistent share repurchases. This internal financing is accompanied by gradual increases in retained earnings in the capital structure and results in high (low) repurchase (investment) sensitivity to cash flow. These effects are particularly pronounced among financially mature firms. During recent decades, the repurchase–cash flow sensitivity of U.S. firms has increased steadily, with steeper increases for financially mature firms. Repurchases do not appear to be associated with underinvestment. A non-trivial number of firms would have depleted their retained earnings had they paid dividends rather than repurchased shares.

Keywords: Share repurchases, valuation, cash flow, retained earnings, capital structure, firm maturity

JEL Classification: G31, G32, G35

Suggested Citation

El Ghoul, Sadok and Guedhami, Omrane and Kim, Hyunseok and Suh, Jungwon, The Persistence and Consequences of Share Repurchases (April 30, 2021). Available at SSRN: https://ssrn.com/abstract=3837076 or http://dx.doi.org/10.2139/ssrn.3837076

Sadok El Ghoul (Contact Author)

University of Alberta - Campus Saint-Jean ( email )

Edmonton, Alberta T6G 2R3
Canada
780-465-8725 (Phone)
780-465-8760 (Fax)

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

Hyunseok Kim

Sungkyunkwan University, School of Business Administration, Students ( email )

206 International Hall
Seoul 110-745
Korea, Republic of (South Korea)

Jungwon Suh

Sungkyunkwan University (SKKU) ( email )

206 International Hall
Seoul 110-745, 110-745
Korea, Republic of (South Korea)

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