Payout Policy Reform and Investor Horizons

48 Pages Posted: 13 Apr 2021 Last revised: 11 Aug 2021

Date Written: April 12, 2021


In this paper, I study how investor horizons affect corporate payout and investment policies using the 1982 share repurchase liberalization in the US as a natural experiment. Following the reform, firms with greater pre-reform short-termist ownership increase payouts by .85% of total assets relative to firms with a more long-term investor base. This is entirely driven by net share repurchases while dividends do not fall after the event. These results soundly reject perfect substitutability of dividends and share repurchases. The increase in payouts is mirrored by an equally sized decline in investment, showing that share repurchase liberalization has sizable real effects on firm behavior. Tests exploiting newly digitized insider trading data support that the results are driven by myopic considerations, rather than efficient down-sizing of firms following the reform.

Keywords: Share Buybacks, Payout Policy, Investment, Short-Termism

JEL Classification: E20, G10, G35, O16

Suggested Citation

Kroen, Thomas, Payout Policy Reform and Investor Horizons (April 12, 2021). Available at SSRN: or

Thomas Kroen (Contact Author)

Princeton University ( email )

United States

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