Share repurchases, the clustering problem, and the free cash flow hypothesis

Wang Huan-San, Norman Strong, Samuel Tung, Steve Lin

Research output: Contribution to journalArticlepeer-review


We examine the market reaction to announcements of actual share repurchases, events that cluster both within and across firms. Using a multivariate regression model, we find that the market reacts positively to the events, indicating that these announcements provide additional information to that contained in the initial repurchase intention announcements. Further, the market response is especially favorable for firms with overinvestment problems as measured by Tobin's q, and is not related to signaling costs as measured by the size of the repurchase. Our findings generally support the hypothesis that share repurchases reduce the agency costs of excessive free cash flow.
Original languageEnglish
Pages (from-to)487-505
Number of pages18
JournalFinancial Management
Issue number3
Publication statusPublished - Sept 2009


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