The Bright Side of Stock Repurchases

Abstract

I provide evidence of actual stock repurchases increasing future investment in firms subject to strong asymmetric information that are reliant on external capital markets. To address endogeneity, I use an instrumental variables approach based on price pressures created by mutual funds' liquidity needs. The results are consistent with firms using actual repurchases to signal their type, which eases access to capital markets and ultimately improves real outcomes.

Keywords: Stock Repurchases, Investment, Instrumental Variables

JEL Classification: G32, G35