Share Repurchase Legalization and Corporate Investment: New Evidence from Staggered Legalizations

Wang, Yin, and Yu (2021) exploit staggered legalizations of share repurchases in 17 countries (1985-2010) and find that legalization reduced investment among firms that repurchased within two years of legalization---about 6.5% of listed firms. We take their identification strategy as given and apply it, using estimators robust to staggered adoption, to all listed firms in the same countries, the population relevant for policy. For the average firm, investment rises by 8-10% of the sample mean after legalization, driven by the younger, higher-growth, and more cash-constrained firms that did not repurchase soon after legalization. Consistent with improved access to equity capital, legalization is also associated with a shift in financing from debt toward equity and with improved profitability and valuation, and investment effects are larger where capital-access frictions were more severe and where post-legalization buyback activity was greatest. Taken together, the evidence is consistent with capital recirculating from mature, cash-rich firms to younger, cash-poor ones rather than with buybacks crowding out investment. This suggests that blanket restrictions on buybacks could inadvertently impede capital-market functioning.