Share Repurchases on Trial : Large-Sample Evidence on Market Outcomes, Executive Compensation, and Corporate Finances

Using a large sample of U.S. stocks covering more than three decades, we empirically test common criticisms of and rationales for stock repurchases. Repurchases account for a tiny fraction of the trading volume in a typical stock, making their price impact too small to facilitate short term price manipulation. Price appreciation following repurchases is modest and does not reverse on average, suggesting prices increase due to repurchases signaling firms’ good prospects. Also, we find no evidence that CEOs of repurchasing firms are paid excessively or that repurchases crowd out valuable investment opportunities. Because repurchases do not appear to be systematically abusive, enforcement action should be sufficient to deal with any bad actors, and significant regulation seems unwarranted