Share repurchases and firm performance: new evidence on the agency costs of free cash flow

Nohel, Tom

doi:10.1016/s0304-405x(98)00022-1

Cited by 256 publications

(129 citation statements)

References 28 publications

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“…Similarly, Lie (2000) argues that large incremental distributions of cash through special dividends and stock repurchases help mitigate the agency problems associated with excess cash flows. Nohel and Tarhan (1998) also find evidence in support of the free cash flow explanation.…”

Section: Previous Work On Share Repurchasesmentioning

confidence: 63%

“…3 Since the estimation approach (described below) requires consecutive observations for a bank holding company over time, we also drop all observations for institutions where there is a "gap" between years (whether the gap was in the original sample or created by the screening described above). Finally, creating growth rates of key variables causes all 2 Evans and Gentry (1999) and Nohel and Tarhan (1998) assess the impact of stock repurchases on the operating performance of firms in the non-financial sector. The results of both studies tend to support the importance of free cash flow more so than signaling as a motivating factor behind repurchases.…”

Section: Bank Holding Company Stock Repurchase Datamentioning

confidence: 99%

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How Do Stock Repurchases Affect Bank Holding Company Performance?

Hirtle

2001

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in ABSTRACTUsing data from bank holding company regulatory reports, we examine the relationship between stock repurchases and financial performance for a large sample of bank holding companies over the years 1987 to 1998. The primary result is that higher levels of repurchases in one year are associated with higher profitability and a lower share of problem loans in the subsequent year. This finding is robust to several different ways of measuring share repurchase activity. Our results appear to be driven primarily by bank holding companies with publicly traded stock, especially those companies whoe stock is traded on major exchanges.The finding that higher repurchases are followed by better financial performance is consistent with at least two distinct behavioral hypotheses. First, bank holding company managers may opt to return excess funds to shareholders when they have limited outside investment opportunities. Alternatively, managers may choose to increase repurchases when they have private information suggesting that the future profitability of the bank is likely to be strong. We find evidence suggesting that the repurchase-performance link may be driven by different factors for different types of bank holding companies. In particular, the evidence is consistent with the first hypothesis for banks traded on major stock exchanges, but only weakly supports this explanation for smaller, closely held companies.

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Section: Previous Work On Share Repurchasesmentioning

confidence: 63%

Section: Bank Holding Company Stock Repurchase Datamentioning

confidence: 99%

How Do Stock Repurchases Affect Bank Holding Company Performance?

Hirtle

2001

SSRN Journal

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“…13 Barber and Lyon (1996). 14 Nohel and Tarhan (1998). 15 For robustness, we use three different methods to select the matching samples: (1) by asset only; (2) first by asset then further control for commercial lines ratio; (3) first by commercial lines ratio and then by asset.…”

Section: Data and Variables Descriptionmentioning

confidence: 99%

Demutualization and Demand for Reinsurance

Wang

Chang

Lai³

et al. 2008

Geneva Pap Risk Insur Issues Pract

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This study investigates whether U.S. property-liability insurers change their demand for reinsurance after demutualization. Our empirical results show that the overall demand for reinsurance of converting insurers is not statistically different after the conversion. Furthermore, we find that converting insurers decrease the demand for reinsurance from non-affiliated reinsurers, but increase the demand for reinsurance from affiliated reinsurers after the conversion. One possible explanation is that converting insurers may treat reinsurance to affiliated reinsurers as risk retention rather than risk transfer so that they can reduce reinsurance cost. Another interesting finding is that converting insurers increase demand for reinsurance from non-affiliated reinsurers before conversion.

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“…Managers in firms with high levels of information asymmetry therefore have an incentive first to announce share repurchases, and then follow through and repurchase shares to make their announcements creditable. Nohel and Tarhan (1998) argue that different firms may have different reasons for repurchasing shares, depending on their investment opportunity set.…”

Section: Introductionmentioning

confidence: 99%

Why do Firms Repurchase Shares? Evidence from Actual Share Repurchases

Liu

Wang²

2015

JFE

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In practice, the share repurchase announcement is not a commitment to managers. To this end, the large difference between the actual and announced share repurchases is often observed in markets. In this paper, we explore the implications from actual share repurchase activities, different from the existing methods which focus on the announcements of share repurchases and hence largely ignore the managers' actual repurchasing activities. By considering actual share repurchases and controlling variables, the new empirical evidence found in this paper clearly supports the agency and investor divergence of opinion hypotheses, but not for the information asymmetry hypothesis.JEL Classifications: G14, G20, G30

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Share repurchases and firm performance: new evidence on the agency costs of free cash flow

Cited by 256 publications

References 28 publications

How Do Stock Repurchases Affect Bank Holding Company Performance?

How Do Stock Repurchases Affect Bank Holding Company Performance?

Demutualization and Demand for Reinsurance

Why do Firms Repurchase Shares? Evidence from Actual Share Repurchases

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