Do share repurchases facilitate movement toward target capital structure? International evidence

We use a new international setting to test and strengthen identification of the " target leverage " hypothesis in the payout policy literature. We conduct a quasi -natural experiment induced by staggered share repurchase legalization in 17 economies and analyze its influences on leverage dynamics. After controlling for other repurchasing motives, firms under -leveraged before legalization are more likely to buy back shares immediately after legalization. Post -legalization repurchases also facilitate firms ' movement toward target leverage, especially when firms are under -leveraged. This facilitating effect is stronger under lower repurchasing restriction, higher dividend tax penalty, and lower financial constraint.