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The Real Effects of Share Repurchases

58 Pages Posted: 8 Jun 2013 Last revised: 19 Jun 2015

Heitor Almeida

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Vyacheslav Fos

Boston College - Department of Finance

Mathias Kronlund

University of Illinois at Urbana-Champaign

Date Written: June 18, 2015

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.

Keywords: Share repurchases, employment, investment, regression discontinuity

JEL Classification: G35, G32

Suggested Citation

Almeida, Heitor and Fos, Vyacheslav and Kronlund, Mathias, The Real Effects of Share Repurchases (June 18, 2015). Forthcoming, Journal of Financial Economics (JFE). Available at SSRN: https://ssrn.com/abstract=2276156 or http://dx.doi.org/10.2139/ssrn.2276156

Heitor Almeida

University of Illinois at Urbana-Champaign ( email )

515 East Gregory Drive
4037 BIF
Champaign, IL 61820
United States
217-3332704 (Phone)

HOME PAGE: http://www.business.illinois.edu/FacultyProfile/faculty_profile.aspx?ID=11357

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Vyacheslav Fos

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

Mathias Kronlund (Contact Author)

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

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