Cash holdings and share repurchases: International evidence

Payout policy, financial flexibility, and agency costs of free cash flow

“…In a more complex version of the model, where free cash has a fixed positive component, it may be possible to show that the certain component of free cash will always be paid out as dividends, and the rest will be paid out as in our model, consistent with this evidence . This is also consistent with the findings that firms tend to pay permanent components of free cash with dividends and transitory components of free cash with repurchases (see, e.g., Guay & Harford, ; Jagannathan et al., ; Lee & Rui, ; and Lee & Suh, ). Subsection 5.2 on special dividends includes a preliminary analysis in this direction.…”

Equity-incentive compensation and payout policy in Europe

“…For instance, Jensen (1986) argues that firms with larger amounts of free cash flow have greater flexibility in their dividend policies. Empirically, Opler et al (1999) find a negative relationship between cash holdings and dividends, while Lee and Suh (2011) provide evidence that repurchasing firms carry more cash than dividend paying firms. Our measure of cash is cash holdings divided by total assets (Cash Ratio).…”

Share Repurchases: A Literature Review

“…They also reported that firms going for frequent repurchase enjoyed a stronger return all across the business cycle compared to the firms going for infrequent or occasional repurchase. Lee and Suh (2011) examined the relationship between excess cash holding and the intention to repurchase shares by taking seven countries such as Australia, Germany, Japan, France, Canada, UK and the US. They established a positive relationship between large cash holdings and repurchase of shares and also found that excess cash arises out of reduction in capital expenditure.…”