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Debt-financed repurchases and credit ratings with the respect of free cash flow and repurchase purpose

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  • Chen, Ni-Yun
  • Chen, Kun-Chih
  • Liu, Chi-Chun

Abstract

We find that the fraction of debt used to finance share repurchases is negatively associated with credit ratings. In particular, this association is more pronounced for firms with a high level of free cash flow. We further divide the sample by the repurchase purpose. We find that the associations between debt-financed repurchases, free cash flow, and credit ratings hold when the repurchase is made for the purpose of transferring shares to employees or for the purpose of equity conversion of convertible securities, but not when it is made for maintaining the company’s credit.

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  • Chen, Ni-Yun & Chen, Kun-Chih & Liu, Chi-Chun, 2019. "Debt-financed repurchases and credit ratings with the respect of free cash flow and repurchase purpose," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 23-36.
    • Handle: RePEc:eee:ecofin:v:47:y:2019:i:c:p:23-36
    DOI: 10.1016/j.najef.2018.11.013
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    Cited by:

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    3. Yu, Baojun & Li, Changming & Mirza, Nawazish & Umar, Muhammad, 2022. "Forecasting credit ratings of decarbonized firms: Comparative assessment of machine learning models," Technological Forecasting and Social Change, Elsevier, vol. 174(C).
    4. López-Iturriaga, Félix J. & Santana Martín, Domingo Javier, 2019. "The payout policy of politically connected firms: Tunnelling or reputation?," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).

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    More about this item

    Keywords

    Debt-financed repurchases; Free cash flow; Credit ratings;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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