Short-term and Long-term Shareholders: Allies or Foes? Evidence from Share Repurchases

Abstract Recent criticism of share repurchases centers on potential conflicts between short- and long-term shareholders. Theoretical models, however, offer conflicting views about the severity of these conflicts. We investigate whether share repurchases are associated with underinvestment in the presence of short-horizon investors. In a sample of U.S firms over the 1988–2020 period, we find no evidence that short-term ownership and buybacks are associated with cuts to capital investments. Instead, share repurchases reduce overinvestment related to short-horizon investors. Results are robust to using Russell Indexes reconstitutions to address endogeneity. Share repurchases do not have detrimental effects on long-term value. JEL Classification Codes : G35, G23, G32