Uncertainty-Driven Buybacks? Evidence from Policy Uncertainty

Using policy-related uncertainty as a shock to firms’ internal and external financing frictions, we find significantly lower repurchase likelihood, short-term market reactions, and post-announcement completion rate of open market share repurchases during periods of high policy uncertainty. The aforementioned effects are stronger for firms that have financial constraints, more dependence on external finance, and higher cash flow volatility. Our results are robust after controlling for potential sources of endogeneity and conducting a battery of robustness tests. Collectively, our evidence suggests that firms are likely to cut their share repurchases as a precautionary motive when financial resources are constrained