Free Cash Flow and Managerial Entrenchment: A Continuous-Time Stochastic Control-Theoretic Model

2007 ◽  
Vol 7 (1) ◽  
Author(s):  
Abel Cadenillas ◽  
Steven P Clark
Keyword(s):  
Stochastic Control ◽  
Cash Flow ◽  
Continuous Time ◽  
Free Cash Flow ◽  
Theoretic Model ◽  
Managerial Entrenchment ◽  
Continuous Time Stochastic Control

Determinants of the Choice between Alternative Share Repurchase Methods

1997 ◽  
Vol 12 (2) ◽  
pp. 101-124 ◽  
Author(s):  
Nikos Vafeas
Keyword(s):  
Cash Flow ◽  
Free Cash Flow ◽  
Share Repurchase ◽  
Open Market ◽  
Empirical Examination ◽  
Tender Offer ◽  
Managerial Entrenchment ◽  
Inside Ownership ◽  
Information Signaling ◽  
Flow Information

This study provides an empirical examination of the determinants of the choice between alternative share repurchase methods. It is shown that the likelihood of selecting a self-tender offer over an open market share repurchase increases with the repurchasing firm's agency costs of free cash flow, inside ownership percentage, leverage, prebuyback stock performance, and the magnitude of cash involved in the transaction. The empirical evidence is consistent with the free cash flow, information-signaling, and managerial entrenchment hypotheses contributing toward explaining the choice of repurchase method among firms. The study concludes that the two repurchase methods appear to serve different purposes for the repurchasing firm.

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