The real effects of share repurchases

Research output: Contribution to journalArticle

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.

LanguageEnglish (US)
Pages168-185
Number of pages18
JournalJournal of Financial Economics
Volume119
Issue number1
DOIs
StatePublished - Jan 1 2016

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Earnings per share
Share repurchases
Repurchase
Analysts
Cash holdings
Regression discontinuity design
Stock repurchases
Trade-offs
Managers
Discontinuity

Keywords

  • Employment
  • Investment
  • Regression discontinuity
  • Share repurchases

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

Cite this

The real effects of share repurchases. / Almeida, Heitor; Fos, Vyacheslav; Kronlund, Mathias.

In: Journal of Financial Economics, Vol. 119, No. 1, 01.01.2016, p. 168-185.

Research output: Contribution to journalArticle

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