Are Share Repurchases Really Flexible?

Abstract

This paper documents a trend of declining flexibility in share repurchase policies over the last four decades. We show that share repurchases have become particularly sticky for firms that have repurchase programs in place. We also exploit the additional inflexibility within existing repurchase programs to provide evidence that repurchase stickiness can have real effects for firms. During the 2008 financial crisis, firms with ongoing share repurchase programs ending after December 2007 choose to complete their programs despite the increased cost of raising new capital. These firms reduce investment, employment, and R&D spending by more than otherwise similar firms with programs ending before the onset of the crisis.