Thought Leadership

We use staggered share repurchases legalization from 1985 to 2010 across the world to examine its impact on corporate behaviors. We find that share-repurchasing firms do not cut dividends as a substitution. The cash for repurchasing shares comes more from internal cash than external debt issuance, leading to reductions in capital expenditures and R&D expenses. While this strategy boosts stock prices, it results in lower long-run Tobin's Q, profitability, growth, and innovation, accompanied by lower insider ownership. Tax benefits and paying out temporary earnings are two primary reasons that firms repurchase.

Relying on the resource-based view, this study tests the moderating effects of the region’s institutional development and the firm’s IT (information technology) infrastructure capability, and examine how and when interpersonal and government-firm (GF) guanxi influence the distributor’s opportunism and cooperative performance. Using both survey data from 550 industrial manufacturers and secondary data, the study shows that both types of guanxi can mitigate the distributor’s opportunism and facilitate cooperative performance. However, the region’s institutional development strengthens the effects of interpersonal guanxi while weakening the effects of GF guanxi, and the firm’s IT infrastructure capability weakens the effects of interpersonal guanxi while strengthening the effects of GF guanxi. These findings enrich both the literature on guanxi in the emerging economy by distinguishing two types of guanxi and RBV by testing the moderating effects of institutional development and IT infrastructure capability. Theoretical and practical implications are discussed.

What capital allocation role can China’s stock market play? Counter to perception, stock prices in China have become as informative about future profits as they are in the US. This rise in stock price informativeness has coincided with an increase in investment efficiency among privately owned firms, suggesting the market is aggregating information and providing useful signals to managers. However, price informativeness and investment efficiency for state-owned enterprises fell below that of privately owned firms after the postcrisis stimulus, perhaps reflecting unpredictable subsidies and state-directed investment policy. Finally, evidence from realized returns suggests Chinese firms face a higher cost of equity capital than US firms.