Share Repurchases vs. Debt Deleveraging: CFO Capital Allocation Under Elevated Interest Rates

References

[1] Abuaf N (2012). Excess cash and shareholder payout strategies. Journal of Applied Corporate Finance, 24(3), 39–54. https://doi.org/10.1111/j.1745-6622.2012.00388.x

[2] Almeida H, Huang R, Xuan Y (2026). Are share repurchases really flexible? Journal of Financial and Quantitative Analysis, 61(1), 176–205. https://doi.org/10.1017/S002210902500016X

[3] Alphabet (2025). Form 10-K for the year ended December 31, 2024. https://www.sec.gov/Archives/edgar/data/1652044/000165204425000014/goog-20241231.htm

[4] Apple (2024). Form 10-K for the fiscal year ended September 28, 2024. https://www.sec.gov/Archives/edgar/data/320193/000032019324000123/aapl-20240928.htm

[5] Aramonte S, Schrimpf A (2020). Mind the buybacks, beware of the leverage. BIS Quarterly Review. https://www.bis.org/publications/mind-buybacks-beware-leverage

[6] Babenko I, Tserlukevich Y, Vedrashko A (2012). The credibility of open market share repurchase signaling. Journal of Financial and Quantitative Analysis, 47(5), 1059–1088. https://doi.org/10.1017/S0022109012000312

[7] Brav A, Graham JR, Harvey CR, Michaely R (2005). Payout policy in the 21st century. Journal of Financial Economics, 77(3), 483–527. https://doi.org/10.1016/j.jfineco.2004.07.004

[8] De Andrés P, de la Fuente G, San Martin P (2018). Capital structure decisions: What Spanish CFOs think. Academia Revista Latinoamericana de Administración, 31(2), 306–325. https://doi.org/10.1108/ARLA-10-2016-0267

[9] DeAngelo H (2022). The capital structure puzzle: What are we missing? Journal of Financial and Quantitative Analysis, 57(2), 413–454. https://doi.org/10.1017/S002210902100079X

[10] DeAngelo H, DeAngelo L, Stulz RM (2006). Dividend policy and the earned/contributed capital mix: A test of the life-cycle theory. Journal of Financial Economics, 81(2), 227–254. https://doi.org/10.1016/j.jfineco.2005.07.005

[11] Dittmar AK (2000). Why do firms repurchase stock? The Journal of Business, 73(3), 331–355. https://doi.org/10.1086/209646

[12] El Ghoul S, Guedhami O, Kim H, Suh J (2024). The persistence and consequences of share repurchases. Journal of Business Finance & Accounting, 51(1–2), 431–472. https://doi.org/10.1111/jbfa.12699

[13] Graham JR, Harvey CR (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2–3), 187–243. https://doi.org/10.1016/S0304-405X(01)00044-7

[14] Grullon G, Michaely R (2002). Dividends, share repurchases, and the substitution hypothesis. The Journal of Finance, 57(4), 1649–1684. https://doi.org/10.1111/1540-6261.00474

[15] Guay W, Harford J (2000). The cash-flow permanence and information content of dividend increases versus repurchases. Journal of Financial Economics, 57(3), 385–415. https://doi.org/10.1016/S0304-405X(00)00062-3

[16] Jagannathan M, Stephens CP, Weisbach MS (2000). Financial flexibility and the choice between dividends and stock repurchases. Journal of Financial Economics, 57(3), 355–384. https://doi.org/10.1016/S0304-405X(00)00061-1

[17] Jensen MC (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76(2), 323–329. https://www.aeaweb.org/aer/top20/76.2.323-329.pdf

[18] Lei Z, Zhang C (2016). Leveraged buybacks. Journal of Corporate Finance, 39, 242–262. https://doi.org/10.1016/j.jcorpfin.2016.04.004

[19] Meta Platforms (2025). Form 10-K for the year ended December 31, 2024. https://www.sec.gov/Archives/edgar/data/1326801/000132680125000017/meta-20241231.htm

[20] Microsoft (2024). Form 10-K for the fiscal year ended June 30, 2024. https://www.sec.gov/Archives/edgar/data/789019/000095017024087843/msft-20240630.htm

[21] Modigliani F, Miller MH (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48(3), 261–297. https://www.jstor.org/stable/1809766

[22] Modigliani F, Miller MH (1963). Corporate income taxes and the cost of capital: A correction. The American Economic Review, 53(3), 433–443. https://www.jstor.org/stable/1809167

[23] Rapp MS, Schmid T, Urban D (2014). The value of financial flexibility and corporate financial policy. Journal of Corporate Finance, 29, 288–302. https://doi.org/10.1016/j.jcorpfin.2014.08.004

@article{1724240,
      author = {Arjun Chaturvedi},
      title = {Share Repurchases vs. Debt Deleveraging: CFO Capital Allocation Under Elevated Interest Rates},
      journal = {Iconic Research And Engineering Journals},
      year = {2025},
      volume = {9},
      number = {4},
      pages = {2327-2342},
      issn = {2456-8880},
      url = {https://www.irejournals.com/formatedpaper/1724240.pdf},
      abstract = {Corporate finance leaders often face a choice between returning cash to shareholders through share repurchases and using that cash to reduce debt. The choice becomes more consequential when borrowing costs are high, leverage is already material, or future cash flows are uncertain. This article reviews the capital-structure and payout-policy research relevant to that decision and develops a framework for evaluating its effects on financing costs, liquidity, credit capacity, investment, operating return on invested capital (ROIC), valuation, and shareholder returns. The central argument is conditional: neither buybacks nor debt repayment is inherently value-creating. A repurchase can be attractive when the shares are undervalued, the firm has durable surplus cash, and leverage remains consistent with its risk capacity. Debt reduction can be more valuable when the after-tax cost of borrowing is high, refinancing risk is meaningful, or preserving a credit rating and future borrowing capacity matters. The article also clarifies a measurement problem. A buyback can mechanically raise earnings per share and alter equity-based or ROIC denominators without improving operating performance; enterprise value, equity value, ROIC, and total shareholder return must therefore be measured separately. The proposed archival study would compare U.S. nonfinancial firms that allocate relatively more cash to repurchases with firms that prioritize principal repayment, while controlling for baseline leverage, profitability, growth opportunities, cash generation, and valuation. The August–September 2025 cohort has not yet completed a three-year outcome period: that window ends in August–September 2028. Accordingly, this manuscript presents a research framework, not empirical findings, and reports no invented company-level results.},
      keywords = {share repurchases; debt deleveraging; capital allocation; capital structure; financial flexibility; cost of capital; ROIC; shareholder returns},
      month = {October},
  }