Share Repurchases and the Inflation Reduction Act

Our study examines the impact of the Inflation Reduction Act (IRA) on shareholder wealth and corporate agency costs. The IRA, signed into law on August 16, 2022, represents the first time in U.S. history that stock repurchases became subject to excise taxes. The stated goal of this new tax was to discourage short-term managerial opportunism, and to encourage long-term investment in real assets and employment. Using event study methodology, we estimate abnormal returns around critical dates during the IRA passage process to evaluate investor perceptions. The empirical results provide support for our two main hypotheses; specifically, we find negative wealth effects for repurchase-intensive firms and higher agency costs for weak-governance firms.