Do Strategic Share Repurchase Programs Create Long-Run Firm Value

Evans, John Philip

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Description

Title

Do Strategic Share Repurchase Programs Create Long-Run Firm Value

Author(s)

Evans, John Philip

Issue Date

1998

Doctoral Committee Chair(s)

James Gentry

Department of Study

Finance

Discipline

Finance

Degree Granting Institution

University of Illinois at Urbana-Champaign

Degree Name

Ph.D.

Degree Level

Dissertation

Keyword(s)

Business Administration, General

Language

eng

Abstract

The findings in the paper do not support the theories that share repurchase programs are related to management signaling an increase in a firm's long-run performance in the market. Contrary to the hypothesized relationships, mean values of Tobin's Q were found to be slightly higher in the non-repurchasing group of companies. Non-Repurchasing firms also show lower B/M measures. The results indicate that the long-term rates of growth are higher for firm's not implementing a share repurchase strategy vis-a-vis firms using a share repurchase strategy. Additionally, in measuring the relationship between the growth in firm value and the performance of the free cash flow components, the regression results found that the growth in the value of non-repurchasing firms was related to the contribution of net working capital and capital investment. It also found that net operating flows were not closely related to the growth in firm value. There is, however, significant improvement in the growth in firm value of repurchasing firms in the period immediately following the initiation of a share repurchase program. This higher level of growth in firm value is not sustained in the long-term. The implementation of a repurchasing strategy is, in itself, not a panacea guaranteeing future wealth creation.

Graduation Semester

1998

Type of Resource

text

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