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Why Do Firms Repurchase Stock

Amy K. Dittmar
The Journal of Business
Vol. 73, No. 3 (July 2000), pp. 331-355
DOI: 10.1086/209646
Stable URL: http://www.jstor.org/stable/10.1086/209646
Page Count: 26
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Why Do Firms Repurchase Stock
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Abstract

In this article, I investigate the relation between stock repurchases and distribution, investment, capital structure, corporate control, and compensation policies over the 1977–96 period. I allow the significance of each motive to change over time to account for adjustments in the percentage of firms influenced by each motive. I find that, throughout the sample period, firms repurchase stock to take advantage of potential undervaluation and, in many periods, to distribute excess capital. However, firms also repurchase stock during certain periods to alter their leverage ratio, fend off takeovers, and counter the dilution effects of stock options.