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  • Luís Krug Pacheco

    (Faculdade de Economia e Gestão, Universidade Católica Portuguesa - Porto)

  • Clara Raposo

    (ISCTE, Business School)


We present univariate and multivariate evidence to show that firms which engage in initial stock repurchases have some specific economic and financial attributes when compared to size-and industry-matched firms. We find that initial repurchase firms are younger, have lower leverage and operating risk, and higher payouts, operating cash flows, profitability and market-to-book than matched non-repurchase firms. Compared to secondary or “seasoned” repurchase matched firms, these initial repurchase firms are also younger and have higher cash, profitability, sales growth and market-to-book, as well as lower payouts, leverage and retained earnings. Therefore, we analyze the determinants and motivations that may explain why firms repurchase their own stock for the first time by studying the theoretical hypotheses found in the financial literature that are most important in explaining initial stock repurchases. The results support the free cash flow and risk reduction signaling hypotheses and the flexibility motivation for conducting stock repurchases. We do not find strong support for any other theoretical explanations of stock repurchases, such as undervaluation signaling, timing, tax effects and options and dilution hypotheses.

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Bibliographic Info

Paper provided by Faculdade de Economia e Gestão, Universidade Católica Portuguesa (Porto) in its series Working Papers de Gestão (Management Working Papers) with number 05.

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Length: 84 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:cap:mpaper:052009

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Keywords: Stock Repurchases; Initial Stock Repurchases; Payout Policy; Theoretical Hypotheses.;

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Cited by:
  1. Luís Krug Pacheco & Clara Raposo, 2009. "ON the TIMING of INITIAL STOCK REPURCHASES," Working Papers de Gestão (Management Working Papers) 06, Faculdade de Economia e Gestão, Universidade Católica Portuguesa (Porto).
  2. Luís Krug Pacheco & Clara Raposo, 2009. "THE CAPITAL and CASH FLOW SOURCES and USES of INITIAL STOCK REPURCHASE FIRMS," Working Papers de Gestão (Management Working Papers) 07, Faculdade de Economia e Gestão, Universidade Católica Portuguesa (Porto).


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