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Leveraged Buybacks

Lei, Z and Zhang, C (2016) Leveraged Buybacks Journal of Corporate Finance.

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Debt-financed share buybacks generate positive short-term and long-run abnormal stock returns. Leveraged buyback firms have more debt capacity, higher marginal tax rate, lower excess cash and lower growth prospects ex ante, increase leverage and reduce investments more sharply ex post than cash-financed buyback firms. Firms that are over-levered ex-ante are associated with lower returns and real investments following leveraged buybacks. The lower announcement returns of over-levered firms are concentrated on firms with weaker corporate governance. The evidence is consistent with leveraged buybacks enabling firms to optimize their leverage, on average benefiting shareholders. The benefits decrease with a firm’s leverage ex ante.

Item Type: Article
Subjects : subj_Finance
Divisions : Faculty of Arts and Social Sciences > Surrey Business School
Authors :
Date : 30 April 2016
Identification Number : 10.1016/j.jcorpfin.2016.04.004
Copyright Disclaimer : © 2016. This manuscript version is made available under the CC-BY-NC-ND 4.0 license
Related URLs :
Depositing User : Symplectic Elements
Date Deposited : 13 May 2016 14:28
Last Modified : 13 May 2016 14:28

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