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Time-Series Behavior of Share Repurchases and Dividends

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  • Lee, Bong-Soo
  • Rui, Oliver Meng

Abstract

Given the growth in the importance and popularity of share repurchases, we use an alternative time-series approach to test two hypotheses on the motives for share repurchases and dividends: the flexibility hypothesis and the substitution hypothesis. By investigating both share repurchase and dividend payout policies in the context of a time-series vector autoregression, we account for the dynamic and multi-dimensional nature of the two payout policies. We find that share repurchases are associated with temporary components of earnings, whereas dividends are not, and that share repurchases and dividends are imperfect substitutes.

Suggested Citation

  • Lee, Bong-Soo & Rui, Oliver Meng, 2007. "Time-Series Behavior of Share Repurchases and Dividends," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(01), pages 119-142, March.
  • Handle: RePEc:cup:jfinqa:v:42:y:2007:i:01:p:119-142_00
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    1. repec:wsi:rpbfmp:v:20:y:2017:i:02:n:s0219091517500126 is not listed on IDEAS
    2. Krieger, Kevin & Lee, Bong-Soo & Mauck, Nathan, 2013. "Do senior citizens prefer dividends? Local clienteles vs. firm characteristics," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 150-165.
    3. Podlech, Nils, 2012. "Dividenden und Aktienrückkäufe unter der Abgeltungssteuer," Manuskripte aus den Instituten für Betriebswirtschaftslehre der Universität Kiel 656, Christian-Albrechts-Universität zu Kiel, Institut für Betriebswirtschaftslehre.
    4. Paul McGuinness & Kevin Lam & João Vieito, 2015. "Gender and other major board characteristics in China: Explaining corporate dividend policy and governance," Asia Pacific Journal of Management, Springer, vol. 32(4), pages 989-1038, December.
    5. Sheng-Syan Chen & Yan-Shing Chen & Yanzhi Wang, 2015. "Does Labor Power Affect the Likelihood of a Share Repurchase?," Financial Management, Financial Management Association International, vol. 44(3), pages 623-653, September.
    6. Lee, Bong Soo & Mauck, Nathan, 2014. "Information Asymmetry and the Market Response to Open Market Share Repurchases," MPRA Paper 54066, University Library of Munich, Germany.
    7. Lee, Bong Soo & Suh, Jungwon, 2011. "Cash holdings and share repurchases: International evidence," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1306-1329.
    8. Podlech, Nils, 2012. "Dividenden und Aktienrückkäufe unter der Abgeltungssteuer," EconStor Preprints 75273, ZBW - German National Library of Economics.
    9. Ahmad, Khurshid & Han, JingGuang & Hutson, Elaine & Kearney, Colm & Liu, Sha, 2016. "Media-expressed negative tone and firm-level stock returns," Journal of Corporate Finance, Elsevier, vol. 37(C), pages 152-172.
    10. Ji, Philip Inyeob, 2016. "Is corporate payout taxation a long run phenomenon? Evidence from international data," The North American Journal of Economics and Finance, Elsevier, vol. 36(C), pages 84-100.
    11. Kulchania, Manoj, 2013. "Catering driven substitution in corporate payouts," Journal of Corporate Finance, Elsevier, vol. 21(C), pages 180-195.
    12. Eva Liljeblom & Sabur Mollah & Patrik Rotter, 2015. "Do dividends signal future earnings in the Nordic stock markets?," Review of Quantitative Finance and Accounting, Springer, vol. 44(3), pages 493-511, April.
    13. Lee, Bong Soo & Mauck, Nathan, 2016. "Dividend initiations, increases and idiosyncratic volatility," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 47-60.
    14. Piergiorgio Alessandri & Donald Robertson & Stephen Wright, 2008. "Miller and Modigliani, Predictive Return Regressions and Cointegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(2), pages 181-207, April.
    15. Lee, Bong-Soo, 2012. "Bank-based and market-based financial systems: Time-series evidence," Pacific-Basin Finance Journal, Elsevier, vol. 20(2), pages 173-197.
    16. repec:eee:finana:v:52:y:2017:i:c:p:240-251 is not listed on IDEAS

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