Corporate Investment under Price Anchors: Evidence from Share Repurchases

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