New facts about stock repurchases. Should repurchases be regulated by the government?
About the class
The standard model of repurchases says that companies repurchase stock when they have excess cash that can’t be redeployed efficiently in the company. In the standard model, an increase in repurchases has no effect on other corporate policies such as investment, R&D and employment. This model doesn’t support a tax on repurchases or other regulation that increases the cost of stock repurchases for companies.
Recent research has shown that the standard model is incomplete. Companies repurchase stock to manage earnings, but since EPS-motivated repurchases are not driven by excess cash, this can take a toll on other corporate policies.
Watch this webinar, led by Heitor Almeida, Professor and Academic Director of iDegrees and Stanley C. and Joan J. Golder Distinguished Chair in Corporate Finance as he explains why:
- The long-term effects of EPS-motivated repurchases on company performance are still being debated.
- This recent research still does not support direct government intervention on corporate repurchases.
- Investors and companies should move away from EPS as a measure of corporate performance.
About the Presenter
Heitor Almeida is Stanley C. and Joan J. Golder Chair in Corporate Finance and academic director of I-degrees at Gies College of Business. He joined the University of Illinois in 2007, working also as a research associate for the National Bureau of Economic Research. His specialties include financial constraints and distress, liquidity management, business groups, innovation, and stock repurchases.
He’s an associate editor for the Journal of Financial Intermediation and the Journal of Banking and Finance, and became managing editor at the Journal of Corporate Finance in January 2021. Almeida has two BAs, one from the Federal University of Minas Gerais at Belo Horizonte and the other from Central University Una at Belo Horizonte. He earned a master’s degree in economics from Pontifical Catholic University of Rio de Janeiro and a PhD in economics from the University of Chicago in 2000.