THE CAPITAL and CASH FLOW SOURCES and USES of INITIAL STOCK REPURCHASE FIRMS

Abstract

This study investigates the capital sources and uses of firms that are conducting stock repurchase transactions for the first time, both prior and subsequent to those financial operations. We hypothesize that this capital and cash flow analysis may shed some light about the relative importance of some financial motivations and theoretical hypotheses in explaining initial stock repurchases. In particular, our findings support the risk reduction signaling and the dividends substitution hypotheses as the primary drivers for the initial stock repurchase decision. We also find that the importance of the most theoretical explanations and financial motivations vary according to whether initial repurchase firms are also conducting acquisitions and significant divestitures, distributing cash dividends, relying on external financing and using debt or cash reserves.Stock Repurchases, Initial Stock Repurchases; Sources of Financing; Cash Flow Distribution.