Political Connections and Share Repurchases

Abstract

This study examines how political connections affect post-buyback performance. We find that politically connected firms generated higher post-buyback abnormal stock and operating returns than unconnected firms. These differences persist after controlling firm characteristics, using an instrumental variable approach, and matching estimation. The probability of a company repurchasing shares and the value of shares repurchased increases with political connectedness. Taken together, our study provides strong evidence that political connections have a significant effect on share repurchase activities.

Keywords: Share Repurchase; Political Connections; Stock Returns

JEL Classification: G14, G32, G35