Journal article
Share repurchases, catering, and dividend substitution
Journal of corporate finance (Amsterdam, Netherlands), Vol.21(1), pp.36-50
06/01/2013
DOI: 10.1016/j.jcorpfin.2013.01.004
Abstract
We first extend Baker and Wurgler's (2004a) catering theory of dividends to share repurchases. Consistent with the notion that firms cater to investor demand for share repurchases, we report evidence that the market's time-varying repurchase premium positively affects firms' choice to repurchase shares. Next, we use the catering behavior as a novel framework for testing the dividend substitution hypothesis. Consistent with the notion that managers consider dividends and share repurchases to be substitute payout mechanisms, we find that the dividend premium negatively affects the repurchase choice, whereas the repurchase premium negatively affects the choice to pay dividends.
► We extend Baker and Wurgler's (2004) dividend catering theory to share repurchases. ► We find that firms repurchase shares when the repurchase premium is high. ► We also use catering behavior to test the dividend substitution hypothesis. ► Dividends (repurchases) are negatively related to the repurchase (dividend) premium. ► Repurchase amount increases (decreases) with the repurchase (dividend) premium.
Details
- Title: Subtitle
- Share repurchases, catering, and dividend substitution
- Creators
- Zhan Jiang - Shanghai Jiao Tong UniversityKenneth A. Kim - Renmin University of ChinaErik Lie - University of IowaSean Yang - State University of New York
- Resource Type
- Journal article
- Publication Details
- Journal of corporate finance (Amsterdam, Netherlands), Vol.21(1), pp.36-50
- Publisher
- Elsevier B.V
- DOI
- 10.1016/j.jcorpfin.2013.01.004
- ISSN
- 0929-1199
- eISSN
- 1872-6313
- Language
- English
- Date published
- 06/01/2013
- Academic Unit
- Finance
- Record Identifier
- 9984380504902771
Metrics
2 Record Views