This paper examines how shareholder horizons influence payout policy choices. We infer institutional shareholders’ investment horizons using the frequency with which they turnover their overall stock portfolios prior to the payout decision. We find that the frequency and amount of repurchases increases with ownership by short-term investors, to the detriment of dividends. We also find that the market reacts less positively to repurchases made by firms held by short-term institutions. These findings are consistent with a model in which undervalued firms signal through repurchases, but firms held by short-term investors make repurchases more often because those investors care mostly about the short-term price reaction. Hence the market rationally discounts the signal provided by such repurchases. Our findings suggest that shorter shareholder horizons might be one contributing factor to the increasing popularity of buybacks.
GASPAR, J.M., MASSA, M., MATOS, P., PATGIRI, R. et REHMAN, Z. (2013). Payout Policy Choices and Shareholder Investment Horizons. Review of Finance (ex European Finance Review), 17(1), pp. 261-320.