This study documents evidence that share repurchases have become persistent in recent years, as an increasing number of firms repurchase shares year after year. This persistence means that share repurchases are now a long-term cash flow commitment. As a result, previous notions about share repurchases—such as considering them a means of distributing transitory cash flow, or a response to undervaluation or raising the debt ratio—have little explanatory power. Instead, share repurchases are linked to fast, consistent future growth, which is reflected in the high stock valuation of share repurchasing firms. Firms use cash flow as the primary source of capital to finance share repurchases year after year. This financing has cumulatively large effects on capital structure, as share repurchasing firms experience large, steady increases in retained earnings and comparable decreases in paid-in capital over time. On average, share repurchases do not displace investment, as share repurchasing firms invest actively to generate fast growth that in turn helps finance repeated share repurchases. 

JEL classification: G31, G32, G35
Key words: Share repurchases, valuation, cash flow, retained earnings, capital structure​