Are Share Repurchases Really Flexible?

44 Pages Posted: 7 Dec 2015 Last revised: 13 Jun 2021

See all articles by Heitor Almeida

Heitor Almeida

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Ruidi Huang

Southern Methodist University (SMU) - Finance Department

Yuhai Xuan

University of California, Irvine - Paul Merage School of Business

Date Written: June 1, 2021

Abstract

This paper documents a trend of declining flexibility in share repurchase policies over the last four decades. We show that share repurchases have become particularly sticky for firms that have repurchase programs in place. We also exploit the additional inflexibility within existing repurchase programs to provide evidence that repurchase stickiness can have real effects for firms. During the 2008 financial crisis, firms with ongoing share repurchase programs ending after December 2007 choose to complete their programs despite the increased cost of raising new capital. These firms reduce investment, employment, and R&D spending by more than otherwise similar firms with programs ending before the onset of the crisis.

Suggested Citation

Almeida, Heitor and Huang, Ruidi and Xuan, Yuhai, Are Share Repurchases Really Flexible? (June 1, 2021). Available at SSRN: https://ssrn.com/abstract=2699632 or http://dx.doi.org/10.2139/ssrn.2699632

Heitor Almeida

University of Illinois at Urbana-Champaign ( email )

515 East Gregory Drive
4037 BIF
Champaign, IL 61820
United States
217-3332704 (Phone)

HOME PAGE: http://www.business.illinois.edu/FacultyProfile/faculty_profile.aspx?ID=11357

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ruidi Huang (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States

Yuhai Xuan

University of California, Irvine - Paul Merage School of Business ( email )

4291 Pereira Drive
Irvine, CA California 92697-3125
United States

HOME PAGE: http://yuhai.merage.uci.edu/

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