SHARE REPURCHASES AND THE FLEXIBILITY HYPOTHESIS

Using the financial crisis as a natural experiment, we test whether repurchases are more flexible than dividends. We document that the proportion of repurchasing firms that reduced repurchase payouts is greater than the proportion of dividend payers that reduced their dividends during the financial crisis period. We find that the market performance of repurchase-reducing firms is better than that of dividend-reducing firms over the financial crisis period. Finally, we find that the operating performance of share repurchasers is better than dividend payers during the financial crisis and postcrisis periods. Overall, we conclude that share repurchases are more flexible than dividends.