Stock Buybacks and Innovation: An Analysis of the Effects of Share Repurchases on Research & Development Expenditures

Rates of stock buybacks have recently hit an all-time high, and have gained a lot of attention from both the business community and the mainstream media. A polarizing debate exists over whether or not stock buybacks are harmful to the economy, especially in the context of stagnant wages and rising income inequality throughout the United States. The primary goal of this research paper is to examine what effect stock buybacks have, if any, on the innovation of large multi-national corporations. The analytical framework uses logit regression and ordinary least squares regression analysis to add to the debate surrounding the effects of share repurchases. Results show that share repurchases are correlated with an increased likelihood that a given company will increase its research & development expenditure in the subsequent year following the repurchase. This can be likely attributed to correlation between large cash holdings and repurchases as well as between large cash holdings and the pursuit of new innovations. While results add to the literature by suggesting correlation between research & development increases and share repurchases, additional paths for future research are proposed