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Durham University

Research & business

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Publication details for Professor Panayiotis Andreou

Andreou, P. C., Cooper, I., García de Olalla, I. & Louca, C. (2018). Managerial overconfidence and the buyback anomaly. Journal of Empirical Finance 49: 142-156.

Author(s) from Durham

Abstract

While positive, long-run abnormal returns following share repurchaseannouncements are substantially lower when CEOs are overconfident. This effect is particularly strong for (i) difficult to value firms, such as small, young, non-dividend paying, distressed, and having negative earnings firms, (ii) firms with poor past stock return performance and high book-to-market ratio, indicators of possible overreaction to bad news, and (iii) financially constrained firms. Overall, these results are consistent with the mispricing hypothesis as a motive for repurchases and as an explanation for the buyback anomaly. Additionally, irrespective of the CEO’s level of confidence, abnormal returns are considerably larger for financially constrained firms, implying their managers require larger undervaluation due to the higher cost of capital.