The cost of financial flexibility: Evidence from share repurchases

Alice A. Bonaimé, Kristine W. Hankins, Bradford D. Jordan

Research output: Contribution to journalArticlepeer-review

30 Scopus citations

Abstract

Over the last two decades, share repurchases have emerged as the dominant payout channel, offering a more flexible means of returning excess cash to investors. However, little is known about the costs associated with payout-related financial flexibility. Using a unique identification strategy, we document a significant cost. We find that actual repurchase investments underperform hypothetical investments that mechanically smooth repurchase dollars through time by approximately two percentage points per year on average. This cost of financial flexibility is correlated with earnings management, managerial entrenchment, and less institutional monitoring.

Original languageEnglish (US)
Pages (from-to)345-362
Number of pages18
JournalJournal of Corporate Finance
Volume38
DOIs
StatePublished - Jun 1 2016
Externally publishedYes

Keywords

  • Corporate governance
  • Earnings management
  • Financial flexibility
  • Payout policy
  • Share repurchase

ASJC Scopus subject areas

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

Fingerprint

Dive into the research topics of 'The cost of financial flexibility: Evidence from share repurchases'. Together they form a unique fingerprint.

Cite this