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Firm performance following actual share repurchases: Effects of investment crowding out and financial flexibility

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  • Chao, Ching-Hsiang
  • Huang, Chih-Jen

Abstract

In this paper, we analyze the effects of abnormal capital investment and financial flexibility on firm performance following actual share repurchases by using a unique Taiwanese dataset. The results indicate that superior operational performance is associated with share repurchases; however, share repurchases may crowd out required capital investments. Further examination reveals that firms with adequate financial flexibility outperform firms with inadequate financial flexibility after actual share repurchases. In summary, our findings suggest that financial flexibility can mitigate the investment crowding out effect and positively affect firms' operational performance post-repurchase.

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  • Chao, Ching-Hsiang & Huang, Chih-Jen, 2022. "Firm performance following actual share repurchases: Effects of investment crowding out and financial flexibility," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:pacfin:v:73:y:2022:i:c:s0927538x22000336
    DOI: 10.1016/j.pacfin.2022.101738
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    More about this item

    Keywords

    Actual share repurchase; Financial flexibility; Investment; Operational performance;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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