The effect of monetary policy on corporate share repurchases in the United States

In the wake of the global financial crisis that began in 2007, central banks throughout the world engaged in unprecented amounts of monetary policy aimed at stimulating their respective economies. One frequent comment from financial operators during this period is that the effectiveness of these efforts was reduced by the fact that central banks policies were also encouraging firms to borrow in order to repurchase their own shares rather than investing. In this paper, we put the hypothesis that loose monetary encourages share repurchases to the test by analyzing the response of S&P500 firms to perceived changes in Federal Reserve Bank policies. We find significant evidence supporting this hypothesis, and find some evidence supporting the hypothesis that firms may be borrowing in order to finance these repurchases.