An Examination of the Current Value Impact of a Leveraged Buyback Announcement

  • M. Nauman Farooqi Mount Allison University, Canada

Abstract

This research is aimed at studying the impact of a substantial share repurchase financed through debt (known as a Leveraged Buyback) on the value of the stock of a company. Prior research shows evidence of a positive average effect, but factors determining the magnitude of response for an individual company are not well understood. This study focuses on explaining variations in response to a leveraged buyback. The study suggested that shareholders like a LBB when the size of the LBB is small and the principle behind it is to supplement their dividend income. However, in cases when the company announces a substantial LBB the shareholders perceive it as bad news. This is because the shareholders feel that such a major restructuring of the capital structure at the hands of an untrustworthy management would put at risk not only their dividend income, but also their original investment.
Published
2004-08-01
How to Cite
Farooqi, M. N. (2004). An Examination of the Current Value Impact of a Leveraged Buyback Announcement. Journal of Comparative International Management, 8(1). Retrieved from https://journals.lib.unb.ca/index.php/JCIM/article/view/457
Section
Articles