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Real effects of share repurchases legalization on corporate behaviors

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  • Wang, Zigan
  • Yin, Qie Ellie
  • Yu, Luping

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.

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  • Wang, Zigan & Yin, Qie Ellie & Yu, Luping, 2021. "Real effects of share repurchases legalization on corporate behaviors," Journal of Financial Economics, Elsevier, vol. 140(1), pages 197-219.
    • Handle: RePEc:eee:jfinec:v:140:y:2021:i:1:p:197-219
    DOI: 10.1016/j.jfineco.2020.10.008
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    More about this item

    Keywords

    Share repurchases; Payout; Investment; Innovation; Firm performance;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • 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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