Divesting Development? The Impact of Share Repurchases on Corporate Innovativeness

摘要

Firms intending to reap the benefits of innovation to enhance their value proposition(Hurley and Hult 1998)need to install suitable governance structures,including managerial incentives(Zona 2016)and effective resource allocation mechanisms(Cardinal 2001;Hoskisson and Hitt 1988).As innovation usually involves long-term projects with uncertain outcomes,projects compete for resources with more predictable,short-term investment opportunities.A corporate policy that can be detrimental to innovativeness is the repurchase of own shares outstanding.Such buybacks are credited as an instrument for signaling healthy financial prospects and managing investor relationships(Brav et al.2005;Dittmar and Field 2015).However,they were also shown to induce reductions in crucial resources such as R&D investment(Fos,Almeida,and Kronlund 2016).Repurchases may lack alignment with the operating business when they are driven by individual motives such as maximizing manager compensation(Kahle 2002;Kim and Ng 2018)and shareholder return(Huang and Thakor 2013).As researchers already found negative associations with long-term product quality(Bendig et al.2018),this study argues that share repurchases will likewise hurt corporate innovativeness.We formulate the following research questions: