Unformatted text preview: a repurchase is different from that of a dividend payment. Companies repurchase when : They have accumulated more cash than they can profitably reinvest They wish to increase their debt levels. Stock repurchases can also be used to signal a managers confidence in the future. 20 The Information in Stock Repurchases: Empirical evidence Lee, Mikkelson and Partch (1992):When companies offer to repurchase their stock at a premium, not only do senior management usually commit to hold onto their stock; on average they also add to their holding before announcement of repurchase Research shows that announcements to buy back shares above the market price have prompted a larger rise in the stock price, averaging 11% Does Dividend Policy Matter? 21 Do dividends change the value of the stock, rather than signaling firm and stock value? If it does than investment decision is not independent of its financing decision Attractiveness of project may depend on how its financed Modigliani and Miller: Irrelevance of dividend policy in a world free of taxes, agency and other imperfect...
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- Spring '12