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The real effects of share repurchases

Author

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  • Almeida, Heitor
  • Fos, Vyacheslav
  • Kronlund, Mathias

Abstract

We employ a regression discontinuity design to identify the real effects of share repurchases on other firm outcomes. The probability of share repurchases that increase earnings per share (EPS) is sharply higher for firms that would have just missed the EPS forecast in the absence of the repurchase, when compared with firms that “just beat” the EPS forecast. We use this discontinuity to show that EPS-motivated repurchases are associated with reductions in employment and investment, and a decrease in cash holdings. Our evidence suggests that managers are willing to trade off investments and employment for stock repurchases that allow them to meet analyst EPS forecasts.

Suggested Citation

  • Almeida, Heitor & Fos, Vyacheslav & Kronlund, Mathias, 2016. "The real effects of share repurchases," Journal of Financial Economics, Elsevier, vol. 119(1), pages 168-185.
    • Handle: RePEc:eee:jfinec:v:119:y:2016:i:1:p:168-185
    DOI: 10.1016/j.jfineco.2015.08.008
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    References listed on IDEAS

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    More about this item

    Keywords

    Share repurchases; Employment; Investment; Regression discontinuity;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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