Corporate Investment under Price Anchors: Evidence from Share Repurchases

58 Pages Posted: 23 Apr 2021 Last revised: 29 Mar 2025

See all articles by Chris Lien

Chris Lien

University of Illinois at Urbana-Champaign - Department of Finance; National Taiwan University - Department of International Business

Darcy Pu

London Business School

Date Written: January 16, 2025

Abstract

We document that firms are substantially more likely to repurchase shares when stock prices approach their previous repurchase price. Exploiting these price anchors as instruments for repurchase decisions, we find that anchor-driven repurchases lead firms to reduce capital expenditures by 0.91 percentage points of total assets—approximately a 25% decrease relative to typical investment. Firms also fund these repurchases internally by reducing trade credit to customers and drawing down cash holdings, rather than issuing debt. Our findings provide the first evidence linking price anchors in repurchase decisions to real corporate investment outcomes, revealing how noncontractible managerial behavior shapes resource allocation.

Keywords: Share Repurchase, reference points, trade credit, anchoring, real effects, investment, behavioral finance

JEL Classification: G35, G30, G31, G32

Suggested Citation

Lien, Chris and Pu, Darcy,

Corporate Investment under Price Anchors: Evidence from Share Repurchases

(January 16, 2025). Available at SSRN: https://ssrn.com/abstract=3826007

Chris Lien (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

National Taiwan University - Department of International Business ( email )

50, Lane 144, Section 4, Keelung Road
Taipei 106
Taiwan

Darcy Pu

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom

HOME PAGE: http://www.london.edu/phd/profiles/darcy-pu

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