Share repurchases, catering, and dividend substitution

► We extend Baker and Wurgler's (2004) dividend catering theory to share repurchases. ► We find that firms repurchase shares when the repurchase premium is high. ► We also use catering behavior to test the dividend substitution hypothesis. ► Dividends (repurchases) are negatively related to the repurchase (dividend) premium. ► Repurchase amount increases (decreases) with the repurchase (dividend) premium.