Do shareholders preferences affect share repurchases? Evidence from mutual funds short-termism

56 Pages Posted: 14 May 2020 Last revised: 5 Nov 2020

See all articles by Thomas Bourveau

Thomas Bourveau

Columbia Business School - Accounting, Business Law & Taxation

Xinlei Li

Hong Kong University of Science and Technology

Daniele Macciocchi

University of Miami Herbert Business School

Chengzhu Sun

Hong Kong University of Science & Technology (HKUST)

Date Written: September 1, 2019

Abstract

We study whether firms increase share repurchases when their shareholders have short-term preferences. We base our analysis on economic theory that establishes that greater transparency about an agent's action increases the agent's career concerns and short-termism. We use a difference-in-differences design around a regulatory change that increased the transparency of mutual funds' managers portfolio choices (i.e., agent's actions), leading to greater mutual funds' short-termism. We find that firms with greater ownership by mutual funds affected by the regulation increase share repurchases following the regulatory change. Consistent with theory, this effect is stronger when mutual fund managers face high career concerns. We also implement a new simulation model to account for multiple hypotheses testing when reusing natural experiments. Overall, we document one important driver of share repurchases: the short-termism of active mutual funds.

Keywords: Myopia, Transparency Regulation, Share Repurchases, Mutual Funds

JEL Classification: G23, G28, G30, G31, M40, M41

Suggested Citation

Bourveau, Thomas and Li, Xinlei and Macciocchi, Daniele and Sun, Chengzhu, Do shareholders preferences affect share repurchases? Evidence from mutual funds short-termism (September 1, 2019). Available at SSRN: https://ssrn.com/abstract=3584004 or http://dx.doi.org/10.2139/ssrn.3584004

Thomas Bourveau

Columbia Business School - Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

Xinlei Li

Hong Kong University of Science and Technology ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Daniele Macciocchi (Contact Author)

University of Miami Herbert Business School ( email )

P.O. Box 248126
Florida
Coral Gables, FL 33124
United States

Chengzhu Sun

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

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