The tremendous increase in share repurchases warrants an explanation. Why have firms increasingly turned to repurchases as a payout method? Undervaluation is commonly touted as the underlying reason behind repurchase decisions. This paper identifies several possible rationales behind repurchase decisions, in addition to undervaluation, by examining the relative advantages of share repurchases over dividends and the managerial incentives associated with share repurchases. The findings indicate managerial incentives are a key factor behind the decision to repurchase stock.
Major Themes in Economics
©2012 by Major Themes in Economics
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"Why do Firms Repurchase Stock?,"
Major Themes in Economics, 14, 55-75.
Available at: https://scholarworks.uni.edu/mtie/vol14/iss1/6