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Sacrificing corporate investment for stock repurchases: Are family firms different?

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  • VanDalsem, Shane A.

Abstract

Recent changes to the US tax code have increased stock repurchases by US firms. Critics state and existing research provides evidence that firms forego valuable investment to repurchase stock for short-term stock price increases, benefiting managers whose compensation is closely tied to the firm's stock price. Firms for which the founding family is involved have been shown to have longer horizons regarding investment decisions. This study examines the repurchase and investing behavior of 827 firms for the period 2006 through 2015. The results provide evidence that firms decrease investment in employment and research & development concurrently with stock repurchases. Family firms, however, are less likely to repurchase shares during the period and, when they do, have a lower propensity to decrease investment in capital expenditures, employment, and research & development compared to firms that do not have a founding family presence.

Suggested Citation

  • VanDalsem, Shane A., 2019. "Sacrificing corporate investment for stock repurchases: Are family firms different?," Journal of Economics and Business, Elsevier, vol. 104(C), pages 1-1.
    • Handle: RePEc:eee:jebusi:v:104:y:2019:i:c:3
    DOI: 10.1016/j.jeconbus.2019.03.001
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    References listed on IDEAS

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    Cited by:

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    2. Gretha Steenkamp & Nicolene Wesson, 2023. "Do Share Repurchases Crowd Out Internal Investment in South Africa?," IJFS, MDPI, vol. 11(3), pages 1-16, July.

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    More about this item

    Keywords

    Family firms; Repurchases; Corporate investment; Corporate governance;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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