Abstract
This study examines the impact of accretive share repurchases, which increases earnings-per share (EPS) at least by one cent to meet or beat analysts’ EPS forecasts, on firm investments, financial performance, and firm value, focusing on excess cash holdings. Employing fuzzy regression discontinuity design, we find that firms with excess cash spend a large amount of cash on accretive share repurchases when they would otherwise have to announce a negative EPS surprise, while firms without excess cash do not. Furthermore, we find that accretive share repurchases have a negative impact on firm investment and financial performance among firms with excess cash, and the value of the excess cash deteriorates when the firm pursues accretive share repurchases using its excess cash. Our findings suggest that holding more cash than necessary causes another agency problem, accretive share repurchase, which leads to a reduction in investments, poor financial performance, and a discount in firm value.
Published Version
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