Financial constraints and share repurchases

Chen, Sheng‐Syan; Wang, Yanzhi

doi:10.1016/j.jfineco.2012.03.003

Cited by 177 publications

(132 citation statements)

References 79 publications

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“…2 For these reasons, financially constrained firms should avoid increasing dividends -which leads to negative financial market reactions and deteriorates firm operating performance in both short term and long term (Chen and Wang, 2012;Pathan et al, 2016).…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…Firms with the lowest WW index values are placed in Decile One, and firms with the highest WW values are placed in Decile Ten. Following the approach in Chen et al (2007) and Chen and Wang (2012), we assign firms to groups based on their WW deciles of the financial year before the release of the 2008 regulation. Firms in the top 3 WW index deciles are classified as being more financially constrained, while firms in the remaining deciles are classified as being less financially constrained (or more financially unconstrained).…”

mentioning

confidence: 99%

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External finance and dividend policy: a twist by financial constraints

Zhong

Chen

Huang

et al. 2016

Accounting & Finance

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This study assesses distorting effect of financial constraints on the inverse relationship between internal and external finance by examining impact of an exogenous financing shock (i.e. a regulation released in China in 2008) on dividend policies in a quasi-natural experimental setting. Our result shows that in the absence of the regulation, the inverse relationship holds. However, the relation is twisted by the 2008 regulation. Compared with unconstrained firms, financially constrained firms are more willing to pay dividends and are more restrained to reduce cash dividends after the regulation, despite the fact that their external financing capacities are further constrained.

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Section: Hypothesis Developmentmentioning

confidence: 99%

mentioning

confidence: 99%

External finance and dividend policy: a twist by financial constraints

Zhong

Chen

Huang

et al. 2016

Accounting & Finance

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“…Chen and Wang (2012) argue that firms that repurchase more shares following their announcement to do so will be more likely to have lower cash balances and increased leverage, resulting to financial constraints and liquidity issues. Therefore, repurchasing firms with financial constraints should have lower stock performance following repurchases.…”

Section: Datamentioning

confidence: 99%

“…Therefore, repurchasing firms with financial constraints should have lower stock performance following repurchases. In order to control for the impact of financial constraint on firms' decision to make a share repurchase, we use the Kaplan and Zingales (1997) index (financial constraint), which is estimated as in Chen and Wang (2012) For investigating the impact of undervaluation on the likelihood to announce an open market share repurchase, we follow Ikenberry et al (1995), Ikenberry et al (2000), Barth and Kasznik (1999), and Dittmar (2000), and we include as a proxy for potential undervaluation the market-to-book ratio at the year-end prior to share repurchase announcement (MKBK). Alternatively, in the spirit of and Andriosopoulos and Hoque (2013) we control for potential undervaluation by employing the pre-repurchase share price returns for a number of time intervals.…”

Section: Datamentioning

confidence: 99%

“…It is the Kaplan and Zingales (1997) index of financial constraint, as estimated in Chen and Wang (2012). In particular, the KZ-index is estimated as KZ=-1.002(Cash Flow over Total Assets -lagged) -39.368(Total Cash Dividends over Total Assets -lagged) -1.315(Cash Balances over Total Assets -lagged) + 3.139(Total Debt over Total Assets -lagged) + 0.283 (Market-to-Book value).…”

Section: Kz-indexmentioning

confidence: 99%

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Prediction of open market share repurchases and portfolio returns: evidence from France, Germany and the UK

Andriosopoulos

Gaganis

Pasiouras

2014

Rev Quant Finan Acc

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This study uses logistic regression for the development of prediction models that distinguish between share-repurchasing and non-share repurchasing firms. The estimated models form the basis for an investment strategy, according to which one invests on the stock of the firms that are predicted as repurchasing ones. Using a sample of firms from the UK, France, and Germany, the results show that this strategy generates positive and statistically significant abnormal returns over different investment periods that range between 1 and 18 months.

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Power of sustainable development: Does environmental management system certification affect a firm's access to finance?

et al. 2021

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Although prior research generated inconclusive findings between a firm's environmental management system and firm financial performance, attention to resolve this inconsistency by examining the internal channels is limited. Thus, this study focuses on a firm's access to finance and investigates whether a firm's environmental management system certification (EMS) leads to better access to finance. Based on the organizational legitimacy perspective, we hypothesize that this certification will benefit a firm with stakeholder approval and support and consequently alleviate its financial capital constraints. We further posit that the proposed relationship will be moderated by three types of legitimacy environments pertaining to how stakeholders and investors make the judgment on the environmental management system certification. We document that the proposed relationship, that is, the positive relationship between environmental management system certification and access to finance, will be stronger when the government attaches larger importance to environmental protection (regulative legitimacy), better environmental record (moral legitimacy), and better financial position (pragmatic legitimacy). Empirical analyses provide strong corroborating evidence for our predictions. These findings have important theoretical and managerial implications that are well discussed in this study.

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Financial constraints and share repurchases

Cited by 177 publications

References 79 publications

External finance and dividend policy: a twist by financial constraints

External finance and dividend policy: a twist by financial constraints

Prediction of open market share repurchases and portfolio returns: evidence from France, Germany and the UK

Power of sustainable development: Does environmental management system certification affect a firm's access to finance?

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