Valuation with Share Repurchases and Personal Taxes

We derive a consistent valuation approach integrating the interdependent effects of cash dividends, share repurchases, and active debt management while considering personal taxes. Additionally, we identify effects of share repurchases on the cost of equity by deriving appropriate adjustment formulae. Furthermore, we run simulations to investigate the valuation differences caused by distribution of excess cash via cash dividends or share repurchases. The results show that share repurchases have a significant positive effect on equity market value.