Abstract
Financially unconstrained firms frequently issue debt to repurchase shares. Controlling for financial constraints, we show that levered repurchases are associated with lower credit spreads and that the debt of companies making such repurchases is more likely to be rated. These results are consistent with debt market timing to coincide with share repurchases, especially when the firm is financially unconstrained. We further show that unconstrained firms that borrow during share repurchases are associated with higher investment expenditures than those that do not borrow. This result indicates that the additional cash flow from borrowing allows these firms to increase their investments.
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