The Effect of Institutional Investment Horizons on Share Repurchases
Taeyeon Kim
Hyun-Dong Kim
In this paper, we examine how institutional investment horizons influence share repurchases in Korea. Using s ample of Korean public firms over the period of 2004-2017, we find that the investment horizons of institutions are positively related to share repurchases. Moreover, firms held by short-term investors make more repurchases because those investors care about the expected capital gain from the short-term price reaction of buybacks. Interestingly, this effect remains only in Chaebol firms. Given that Chaebol firms have less financial constraints by the presence of internal capital markets, this characteristic of Chaebol firms is likely to provide a suitable environment to increase repurchases. Overall, our empirical findings suggest that shorter institutional investment horizons might be one of important factors to explain the increasing buybacks.