Does CEO bias escalate repurchase activity?
Humphery-Jenner, Mark and
Journal of Banking & Finance, 2018, vol. 93, issue C, 105-126
We propose and test the hypothesis that overconfident-CEOs, with upwardly-biased estimates of own firm-value, are more predisposed to repurchasing stock. An implication is that the stock-market, recognizing overconfident-CEO behavior, will react less positively to repurchase announcements. The hypothesis is strongly supported: Overconfident managers repurchase stock at lower levels of cash holdings, and respond more to stock-price declines. Entrenchment exacerbates this behavior. Interestingly, institutional investors appear to encourage repurchases, perhaps to curb excessive investment. Overconfident-CEOs are also more likely to substitute repurchases for dividends or capital expenditure. Consistent with our hypothesis, the stock-market reaction to these share repurchase announcements is less positive.
Keywords: Overconfidence; Repurchases; Dividend-repurchase substitution; Investment-repurchase substitution; Corporate governance (search for similar items in EconPapers)
JEL-codes: G32 G35 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:93:y:2018:i:c:p:105-126
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