Do share repurchases facilitate movement toward target capital structure? International evidence

Zigan Wang*, Qie Ellie Yin, Luping Yu

*Corresponding author for this work

Research output: Contribution to journalJournal articlepeer-review

Abstract

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.

Original languageEnglish
Article number101498
Number of pages30
JournalJournal of Empirical Finance
Volume77
Early online date28 Mar 2024
DOIs
Publication statusPublished - Jun 2024

Scopus Subject Areas

  • Finance
  • Economics and Econometrics

User-Defined Keywords

  • Capital structure
  • Share repurchases
  • Target leverage

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