Passive Investment and Share Repurchases

58 Pages Posted: 18 Jul 2020 Last revised: 23 Mar 2022

See all articles by Brian Bratten

Brian Bratten

University of Kentucky - Von Allmen School of Accountancy

Meng Huang

University of Toledo

Jeff L. Payne

University of Kentucky - Von Allmen School of Accountancy

Date Written: March 2022

Abstract

We investigate the association between passive investment and share repurchases, both at historically high levels and the subject of scrutiny. We report that firms with more passive ownership exhibit higher levels of repurchase activity. Further, we find that firms with passive ownership conduct more “suspect” repurchases that result in reported earnings that meets or beats analysts’ earnings forecasts, and this effect is more pronounced for firms with performance-based equity compensation incentive plans. We also find that repurchase activity more negatively affects firms’ future employment, capital expenditures, and performance when the firm has more passive owners. We conclude that passive investment is associated with an increase in the quantity and a reduction in the quality of firms’ repurchase activities.

Keywords: passive investment, stock repurchases, earnings management, firm performance, payout policy

JEL Classification: M41, G32, G35

Suggested Citation

Bratten, Brian and Huang, Meng and Payne, Jeff L., Passive Investment and Share Repurchases (March 2022). Available at SSRN: https://ssrn.com/abstract=3626244 or http://dx.doi.org/10.2139/ssrn.3626244

Brian Bratten (Contact Author)

University of Kentucky - Von Allmen School of Accountancy ( email )

Lexington, KY 40506
United States
859-257-1947 (Phone)

HOME PAGE: http://gatton.uky.edu/faculty-research/departments/von-allmen-school-accountancy/directory

Meng Huang

University of Toledo ( email )

United States

Jeff L. Payne

University of Kentucky - Von Allmen School of Accountancy ( email )

Lexington, KY 40506
United States

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