Capital Redeployment in the Equity Market
54 Pages Posted: 10 Nov 2017 Last revised: 5 Jun 2018
Date Written: April 14, 2018
Payouts, in the form of dividends and buybacks, reached a height of almost a trillion dollars per annum in recent years. A large proportion of these dollars have been directly reinvested into the stock market. Drawing on data on mutual fund holdings, I show that capital repayments are accompanied by predictable excess returns in stocks connected to these payments, consistent with demand-driven price pressure. Due to the persistence of these capital return programs, abnormal returns accumulate over significant holding periods. Additionally, the exposure to capital redeployment by non-payout firms is associated with firm-level equity issuances. While firms exposed to high levels of capital returns negligibly increase their own buyback and dividend activities, they are able to persistently issue stocks through seasoned offers relative to other firms.
Keywords: Mutual Funds, Payout Policy, Dividend Policy, Stock Buyback, and Spillover Effects
JEL Classification: G10, G14, G23, G31, G35
Suggested Citation: Suggested Citation