Cash Holdings, Institutional Investors, and Free Cash Flow Hypothesis

2011 ◽  
Author(s):  
Sigitas Karpavicius ◽  
Fan Yu
Keyword(s):  
Cash Flow ◽  
Institutional Investors ◽  
Cash Holdings ◽  
Free Cash Flow ◽  
Free Cash Flow Hypothesis

An Examination of the Free Cash Flow and Information/Signaling Hypotheses Using Unexpected Dividend Changes Inferred from Option and Stock Prices: The Case of Regular Dividend Increases

2011 ◽  
Vol 14 (03) ◽  
pp. 563-600 ◽  
Author(s):  
Sheng-Syan Chen ◽  
Kuei-Chin Fu
Keyword(s):  
Research And Development ◽  
Cash Flow ◽  
Stock Prices ◽  
Abnormal Returns ◽  
Positive Association ◽  
Free Cash Flow ◽  
High Q ◽  
Information Signaling ◽  
Dividend Increases ◽  
Free Cash Flow Hypothesis

This paper measures unexpected dividend changes in testing the free cash flow and information/signaling hypotheses using the Bar–Yosef/Sarig method. The empirical findings reveal the following: (i) The association between announcement period abnormal returns and the cash level is significantly positive for low q firms; (ii) The positive association between announcement period, abnormal returns, and the cash level is stronger in low q than in high q firms for most regressions; (iii) Low q firms reduce their capital and research and development (R&D) expenditures during the four fiscal years following dividend increase announcements. Our results are consistent with the free cash flow hypothesis.

A test of the free cash flow hypothesis

1991 ◽  
Vol 29 (2) ◽  
pp. 315-335 ◽  
Author(s):  
Larry H.P. Lang ◽  
RenéM. Stulz ◽  
Ralph A. Walkling
Keyword(s):  
Cash Flow ◽  
Free Cash Flow ◽  
Free Cash Flow Hypothesis

Economic Sources of Gain in Stock Repurchases

2004 ◽  
Vol 39 (3) ◽  
pp. 461-479 ◽  
Author(s):  
Konan Chan ◽  
David Ikenberry ◽  
Inmoo Lee
Keyword(s):  
Cash Flow ◽  
Market Reaction ◽  
Free Cash Flow ◽  
Stock Repurchases ◽  
Initial Reaction ◽  
Cross Sectional ◽  
Economic Role ◽  
Related Information ◽  
Long Run ◽  
Free Cash Flow Hypothesis

AbstractPrevious studies offer a mixed understanding of the economic role of stock repurchases. This paper investigates three key economic motivations—mispricing, disgorging free cash flow, and increasing leverage—by evaluating cross-sectional differences in both the initial market reaction and long-run performance. The initial reaction provides some support for the mispricing story. However, subsequent earnings-related information shocks suggest that the initial market reaction is incomplete and that long-run performance may be informative. The long-horizon return evidence is most consistent with the mispricing hypothesis and, to some degree, the free cash flow hypothesis. We find little support for the leverage hypothesis.

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