Real effects of share repurchases legalization on corporate behaviors

Zigan Wang, Qie Ellie Yin and Luping Yu

Journal of Financial Economics, 2021, vol. 140, issue 1, 197-219

Abstract: We use staggered share repurchases legalization from 1985 to 2010 across the world to examine its impact on corporate behaviors. We find that share-repurchasing firms do not cut dividends as a substitution. The cash for repurchasing shares comes more from internal cash than external debt issuance, leading to reductions in capital expenditures and R&D expenses. While this strategy boosts stock prices, it results in lower long-run Tobin's Q, profitability, growth, and innovation, accompanied by lower insider ownership. Tax benefits and paying out temporary earnings are two primary reasons that firms repurchase.

Keywords: Share repurchases; Payout; Investment; Innovation; Firm performance (search for similar items in EconPapers)
JEL-codes: G32 G35 G38 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:140:y:2021:i:1:p:197-219

DOI: 10.1016/j.jfineco.2020.10.008

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