Capital structure, equity mispricing, and stock repurchases
Date of this Version
1-1-2014
Document Type
Article
Rights
default
Abstract
We evaluate motives for share repurchases using a unified framework where a firm has a target capital structure and has equity that can be mispriced. We document that capital structure adjustments are a value-increasing motive for repurchases and that the extent to which adjusting capital structure through a repurchase creates value depends on the undervaluation of the firm. Underlevered and undervalued firms enjoy the greatest economic gains from a repurchase, as evidenced by the stock price reaction to the repurchase announcement, and these firms are more likely to announce a share repurchase program. © 2014.
Recommended Citation
Bonaimé, Alice Adams; Öztekin, O.; and Warr, Richard S., "Capital structure, equity mispricing, and stock repurchases" (2014). College of Business Faculty Publications. 19.
https://digitalcommons.fiu.edu/business_fac/19