Investment opportunities and share repurchases

We examine the over-investment motivation for share repurchases using a sample of 139 Real Estate Investment Trusts (REITs) between 1996 and 2010. By combining a REIT's property portfolio data with project ROAs from the underlying real estate market, we are able to create a unique measure of th...

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Published in:Journal of corporate finance (Amsterdam, Netherlands) Netherlands), 2013-12, Vol.23, p.23-38
Main Authors: Boudry, Walter I., Kallberg, Jarl G., Liu, Crocker H.
Format: Article
Language:English
Subjects:
Investment opportunities
Investment policy
Rates of return
REITs
Return on assets
Securities buybacks
Share repurchases
Studies
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description We examine the over-investment motivation for share repurchases using a sample of 139 Real Estate Investment Trusts (REITs) between 1996 and 2010. By combining a REIT's property portfolio data with project ROAs from the underlying real estate market, we are able to create a unique measure of the firm's investment opportunity set. Controlling for other possible buyback rationales, we find that poor investment opportunities are related to higher levels of share repurchases. Conditioning on investment opportunities, we find that the level of cash is positively related to repurchases only for low investment opportunity set firms. We also find a negative relationship between share repurchase announcement returns and investment opportunities. •We examine the relationship between investment opportunities and share repurchases.•We use real estate investment trusts (REITs) for our tests.•REITs allow for better measurement of a firm’s investment opportunities.•We find that share repurchases are negatively related to investment opportunities•We find announcement returns are negatively related to investment opportunities
doi_str_mv 10.1016/j.jcorpfin.2013.07.006
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subjects Investment opportunities
Investment policy
Rates of return
REITs
Return on assets
Securities buybacks
Share repurchases
Studies
title Investment opportunities and share repurchases
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