Ricardo De la O, Stanford University

The Effect of Buybacks on Capital Allocation
This paper studies how share buybacks affect the capital allocation of individual firms, aggregate investment, and welfare. A key feature of buybacks is that they represent a more flexible form of payout to shareholders than dividends. I incorporate this flexibility into a quantitative general equilibrium model of heterogeneous firms with agency frictions. In the model, managers have distorted incentives because they make investment decisions with an empire-building motive. Share buybacks allow shareholders to control the available funds to managers. Moreover, buybacks make the stock price of the firm more sensitive to its profits, which improves managers' incentives through stock-based compensation. When the model is matched to micro data on public firms, it helps explain several observed corporate trends since the deregulation of buybacks in 1982: the decline in investment rates, the increase in corporate financial assets and the increase in capital profitability.

Datos del Seminario

Fecha de inicio:
17 de Enero, 2020 | 12:00 hrs.

Fecha de término
17 de Enero, 2020 | 14:00 hrs.