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STOCK BUYBACKS, CORPORATE PERFORMANCE, AND EVA
Author(s) -
Gup Benton E.,
Nam Doowoo
Publication year - 2001
Publication title -
journal of applied corporate finance
Language(s) - English
Resource type - Journals
eISSN - 1745-6622
pISSN - 1078-1196
DOI - 10.1111/j.1745-6622.2001.tb00324.x
Subject(s) - stock (firearms) , business , stock price , cash flow , restricted stock , cash , finance , growth stock , monetary economics , stock market , economics , engineering , mechanical engineering , paleontology , horse , series (stratigraphy) , biology
Most studies of corporate stock repurchase focus on the effect of stock buyback announcements on the stock price performance of companies announcing the programs, and on the corporate motives for undertaking stock buyback programs. The study described in this article examines the effects of actual stock buyback activities on corporate performance, addressing the question whether buybacks are associated with increases in economic value or EVA. In general, the study reports that the operating performance of buyback companies is better than that of non‐buyback companies, and that performance improves in the year following the initiation of repurchasing activities. Although it is not the central focus of this study, the findings are consistent with both the free cash flow and the information signaling hypotheses as motives for engaging in stock buybacks.