Academic paper published on SSRN.
Summary: “Using a large sample of US stocks covering more than three decades, we empirically examine common criticisms of and rationales for stock repurchases.”
The study “Share Repurchases on Trial: Large-Sample Evidence on Share Price Performance, Executive Compensation, and Corporate Investment” examines the impact of share repurchases on stock prices, executive compensation, and corporate investment. The authors find that repurchases have a modest positive effect on stock prices, indicating that they signal firms’ good prospects. Additionally, there is no evidence that CEOs of repurchasing firms are paid excessively or that repurchases crowd out valuable investment opportunities. The study concludes that repurchases do not appear to be systematically abusive, suggesting that enforcement action is sufficient to address any bad actors, and significant regulation is unwarranted.
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