GAMS
Article Details
Vol. 2 No. 2 (2025): November
Determinants and consequences of share repurchases: Evidence from U.S. public firms
21 Nov 2025
Abstract
Purpose: This study investigates the underlying motivations behind share repurchases by U.S. companies and evaluates their impact on firm performance. It specifically explores financial conditions, managerial incentives, and market-related factors that drive buyback decisions, as well as the short- and long-term consequences for shareholders.
Methodology/Approach: A quantitative, deductive approach is applied using data from publicly listed U.S. firms. Secondary data are sourced from Compustat, CRSP, ExecuComp, Bloomberg, and SEC filings. The analysis employs panel regressions, event-study methods, and multiple robustness checks conducted with statistical software such as Stata or R.
Results/Findings: The findings indicate that free cash flow availability and perceived stock undervaluation are the most influential determinants of repurchases. Buyback announcements produce positive short-term market reactions, and firms demonstrate subsequent improvements in ROE and EPS. Nevertheless, share repurchases do not consistently enhance long-term abnormal stock returns. The results also show no significant reduction in investment, R&D, or employment, implying that buybacks are typically financed through excess liquidity.
Conclusions: Share repurchases primarily function as a mechanism for capital allocation rather than a substitute for productive investment. While they generate short-term value for shareholders, their long-term effects tend to be neutral.
Limitations: The study is restricted to U.S. firms and a specific time frame, and endogeneity concerns remain despite methodological controls.
Contribution: This research advances understanding of buyback motives and outcomes, offering insights for managers, investors, and policymakers in evaluating repurchase strategies.
Keywords
Event Study
Financial Performance
Free Cash Flow
Share Repurchase
Signaling Theory
How to Cite
Hossain, M. M. ., Nodia, U. Z. Z. ., Rahman, F. ., Antor, M. M. H. ., Ahmed, M. T. ., & Priya , F. A. . (2025). Determinants and consequences of share repurchases: Evidence from U.S. public firms. Global Academy of Multidisciplinary Studies, 2(2), 121–140. https://doi.org/10.35912/gams.v2i2.3668
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