Does Share Repurchase Legalization Really Harm Corporate Investments?

Abstract

We revisit the investment effects of stock-repurchase legalization using staggered adoptions in 17 countries (1985-2010). We show that, when extending prior work to the full population of listed firms and employing more robust econometric methods, legalization raises investment by about 8-10% of the sample mean. Our findings are consistent with the hypothesis that buyback legalization improves access to equity capital, reallocating idle cash across public companies rather than crowding out investment. Supporting this thesis, we find that: the positive investment effects are driven entirely by younger, higher-growth, cash-constrained non-repurchasers; capital structures tilt from debt toward equity; profitability and valua tion improve; and investment effects intensify where capital-access frictions are more severe. Taken together, the results imply that blanket restrictions on buybacks could inadvertently impede efficient capital allocation.