Managerial Overconfidence and Share Repurchases

Pei-Gi Shu · Yin‐Hua Yeh · Tsui‐Lin Chiang · Jui‐Yi Hung

35 citations0/0 files storedInternational Review of Finance

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Corporate Finance and Governance Financial Markets and Investment Strategies Auditing, Earnings Management, Governance

Abstract

Abstract Following prior studies, we use keywords in press portrayals to gauge managerial overconfidence. We hypothesize that managerial overconfidence is related to a manager's perception that the firm is undervalued. Results from 2744 share repurchase programs launched by 783 listed firms in Taiwan confirm this hypothesis. We find that managerial overconfidence is positively correlated with the intensity of share repurchasing, which is measured by scale, execution, frequency, and the difference between the announced price and post‐execution price. Moreover, the programs launched by overconfident managers were not undervalued and therefore were associated with reduced post‐announcement returns.

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References

1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1980Unrealistic optimism about future life events.1983Human Inference: Strategies and Shortcomings of Social Judgment.1975The illusion of control.1986The Hubris Hypothesis of Corporate Takeovers 2005CEO Overconfidence and Corporate Investment 1984Two Agency-Cost Explanations of Dividends 1982Book Review Nisbett, R. , & Ross, L.Human inference: Strategies and shortcomings of social judgment.Englewood Cliffs, N.J.: Prentice-Hall, 1980.

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