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Guest et al discuss their study which outlines the benefits of the stock buyback practice, as stated by its proponents, and provides evidence that casts doubt on the alleged costs cited by its critics. Critics of buybacks typically make three arguments against the practice. First, they claim that share repurchases enable companies to manipulate the market either by increasing the demand for shares or by tricking naive investors by inflating earnings per share. Second, they allege that share repurchases enable insiders to benefit through compensation contracts or the sale of shares at inflated prices. And lastly, critics charge that share repurchases crowd out investment and thus sacrifice innovation and long-term economic growth. Through their analysis, they were able to systematically address each of the stated criticisms of stock buybacks. Overall, the results show an absence of correlation between share repurchases and price manipulation, return reversals, excess chief executive officer compensation, and underinvestment, which makes it highly implausible that economically significant causal effects of share repurchases still underlie the data.

We examine how product market threats influence firm payout policy and cash holdings. Using firms' product text descriptions, we develop new measures of competitive threats. Our primary measure, product market fluidity, captures changes in rival firms' products relative to the firm's products. We show that fluidity decreases firm propensity to make payouts via dividends or repurchases and increases the cash held by firms, especially for firms with less access to financial markets. These results are consistent with the hypothesis that firms' financial policies are significantly shaped by product market threats and dynamics.

This article embarks on ethical trade-offs at the sustainability/finance interface by contrasting shareholders’ interest in short-term financial returns with society’s interest in counteracting ecological and social grievances. Scrutinizing share repurchases, we investigate a firm’s communicated sustainability orientation (i.e., its environmental and social value orientation) as well as its environmental and social sustainability performance. Our results are based on a large-scale panel dataset of 491 U.S. firms observed from 2004 to 2016. The dataset combines share buyback data with sustainability orientation scores from shareholder letters and sustainability performance ratings. The econometric models suggest no association between social value orientation and repurchase volumes, but a significantly negative relationship between environmental value orientation and buybacks in a cubic form. Executive stock options partially attenuate this relationship. Share repurchases in turn negatively affect future environmental and social performance. This study grasps the consequences of firms’ short-term shareholder satisfaction and discusses its ethical implications in the context of firms’ contribution to sustainable development, thereby providing important insights to the business ethics discourse.

The Financialization of Health in the United StatesWhat do new forms of financial-sector ownership and influence in the U.S. health care system, with their emphasis on short-term profit growth, mean for patients’ health and pocketbooks?

Aris Angelis and colleagues argue that by refocusing their spending drug companies could provide more innovative drugs at affordable prices

Prior theory claims that buyback and revenue-sharing contracts achieve equivalent channel-coordinating solutions when applied in a dyadic supplier–retailer setting. This suggests that a supplier should be indifferent between the two contracts. However, the sequence and magnitude of costs and revenues (i.e., losses and gains) vary significantly between the contracts, suggesting the supplier’s preference of contract type, and associated contract parameter values, may vary with the level of loss aversion. We investigate this phenomenon through two studies. The first is a preliminary study investigating whether human suppliers are indeed indifferent between these two contracts. Using a controlled laboratory experiment, with human subjects taking on the role of the supplier having to choose between contracts, we find that contract preferences change with the ratio of overage and underage costs for the channel (i.e., the newsvendor critical ratio). In particular, a buyback contract is preferred for products with low critical ratio, whereas revenue sharing is preferred for products with high critical ratio. We show these results are consistent with the behavioral tendency of loss aversion and are more significant for subjects who exhibit higher loss aversion tendencies in an out of context task. In the second (main) study, we examine differences in the performance of buyback and revenue-sharing contracts when suppliers have the authority to set contract parameters. We find that the contract frame influences the way parameters are set and the critical ratio again plays an important role. More specifically, revenue-sharing contracts are more profitable for the supplier than buyback contracts in a high critical ratio environment when accounting for the supplier’s parameter-specification behavior. Also, there is little difference in performance between the two contracts in a low critical ratio environment. These results can help inform supply managers on what types of contracts to use in different critical ratio settings. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2015.2182 . This paper was accepted by Martin Lariviere, operations management .

Corporates use share repurchases as a part of overall corporate restructuring strategy of distributing excess funds and building promoters’ stakeholding. It provides a mechanism to adjust the capital structure and financial position of a firm. Repurchase of shares by Indian firms is on the rise in recent years. This paper is an attempt to examine the impact of repurchase announcements made by Information Technology (IT) companies on the wealth of the shareholders. All the recent repurchase announcements made by IT companies fall in the scope of this study. Results of event study methodology have found that there is a positive significant impact of repurchase announcements on the shareholders’ wealth.

Investor demand has promoted share repurchases to the dominating payout instrument for U.S. firms. However, critics worry that the repurchase boom leads to firms neglecting long-term investments. Even worse, scholars have shown that investor pressure also motivates firms to cut marketing investments with the aim of boosting short-term income, a practice called myopic marketing management. Extant theory still lacks an understanding of whether and how the cooccurrence of share repurchases and myopic marketing affects firm stakeholders such as investors and consumers. Using a large-scale cross-industry sample, the authors reveal that there is a higher share of firms cutting marketing investments among repurchasing firms than among nonrepurchasing firms. Furthermore, investors immediately respond negatively to myopic firms that also repurchase shares. Finally, repurchases and myopic marketing are also associated with an increase in product recalls. This first study to assess share repurchases through a marketing lens hence reveals negative effects on both the stock and the consumer markets.

We are the first to document and study the use of Rule 10b5-1 preset repurchase plans. Though the rule’s original intent was to clarify conditions for enforcing insider trading laws, generally thought to apply to individuals classified as firm insiders, we find strong use of the rule at the firm level to repurchase company stock. We exploit this new and widespread form of payout to examine an issue at the core of payout decisions—the trade-off between commitment and financial flexibility. Relative to open market repurchases, preset plans provide an expanded repurchase window and increased legal cover, albeit at the cost of reducing repurchase flexibility and the option to time repurchases. These costs and benefits are significantly associated with Rule 10b5-1 adoption: Firms with alternative sources of financial flexibility are more likely to precommit to a repurchase plan, as are firms with a history of poor repurchase timing and firms constrained by blackout windows. Consistent with preset plans signaling commitment, Rule 10b5-1 repurchase announcements are associated with greater and faster completion rates, with more positive market reactions, and with more dividend substitution than open market repurchases. Lastly, we find that preset repurchase plans represent a unique payout tool whose introduction encouraged a different set of firms to buy back stock and significantly altered the payout landscape. This paper was accepted by David Simchi-Levi, Finance.

States encourage listed companies to use stock repurchase to elevate the market value of listed firms. After China’s promulgation of the new Company Law in 2018, the number of listed companies that issued stock repurchase notices has increased, and the frequency is also increasing. But whether market value management is the real incentive for the action remains debatable. To reduce the risk of pledges, controlling shareholders may use stock repurchases to maintain the security of control rights, and stock repurchase notice may become a tool for controlling shareholders to manage pledge risks. From the perspective of pledge risk management, this paper selects the listed companies from 2012 to 2019 and finds that the share pledge of the controlling shareholder affects the stock repurchase behavior of listed companies by affecting the current pledge risk and the quality of information disclosure plays the interactive role between the two.