This paper investigates the role that excess cash plays in explaining actual open market share reacquisitions and examines the impact of agency problems on the payout decision. Using data from the U.K., where disclosure regulations make it possible to directly measure the volume and value of shares reacquired, we find that repurchase activity clusters in cash generative industries where investment opportunities are scarce. Holding investment opportunities constant at the firm level, we find that abnormally high cash flows from operating and (to a lesser extent) investing activities drive both the probability of a repurchase and the amount spent reacquiring shares. Comparing a subset of repurchases that are unambiguously driven by the desire to distribute surplus cash with a cash-matched sample of nonrepurchasing firms, we find that repurchasers are characterized by lower managerial entrenchment. Repurchasers also report superior improvements in postrepurchase operating performance and are less likely either to fail or be targeted in corporate control contests during the two-year period following the payout decision. Our results support the view that managers use share reacquisitions as flexible tool for distributing transitory cash surpluses, but only in the absence of serious agency problems between inside and outside shareholders.