Journal of Financial Services Research

, Volume 43, Issue 2, pp 221–242

Motivation for Repurchases: A Life Cycle Explanation

  • Woan-lih Liang
  • Konan Chan
  • Wei-Hsien Lai
  • Yanzhi Wang
Article

DOI: 10.1007/s10693-011-0126-7

Cite this article as:
Liang, W., Chan, K., Lai, WH. et al. J Financ Serv Res (2013) 43: 221. doi:10.1007/s10693-011-0126-7

Abstract

This study examines the motives for share repurchases. Whereas most prior research points to either the signaling or free cash flow hypothesis, we find that the motives for repurchases differ depending on the firm’s life cycle stage. Specifically, we find that a firm in the growth stage tends to announce a repurchase program to signal its undervalued stock whereas a firm in the mature stage is prone to buy back shares to dispense excess free cash flow. We also find that the market reaction to repurchase announcements corroborates this life-cycle argument.

Keywords

Repurchase Life cycle Signaling Free cash flow 

JEL Classification

G35 G30 

Copyright information

© Springer Science+Business Media, LLC 2012

Authors and Affiliations

  • Woan-lih Liang
    • 1
  • Konan Chan
    • 2
    • 3
  • Wei-Hsien Lai
    • 1
  • Yanzhi Wang
    • 1
  1. 1.College of ManagementYuan Ze UniversityTaoyuanTaiwan
  2. 2.School of Economics and FinanceUniversity of Hong KongPokfulamHong Kong
  3. 3.Department of FinanceNational Chengchi UniversityTaipeiTaiwan