Managerial Ability, Forecasting Quality, and Open-Market Repurchase Program Completion

Posted: 7 Nov 2018

See all articles by Jian Cao

Jian Cao

Florida Atlantic University

Yun Cheng

State University of West Georgia

Joanna Golden

University of Memphis - School of Accountancy

Joseph Zhang

University of Memphis

Date Written: October 9, 2018

Abstract

Prior research suggests that managers often fail to complete announced open market repurchase (OMR) plans due to uncertainty in the firm’s future cash flows. Although high-ability managers should manage cash flows more effectively to complete share reacquisitions, there is little evidence to support this idea. This paper investigates whether CEOs with superior ability to efficiently manage corporate resources are associated with higher OMR completion rates. Our main findings are that OMR program completion rates increase with managerial ability and that the association is further moderated by the quality of management earnings forecasts. Cross-sectional analyses indicate that the positive associations are more pronounced in firms with higher cash flow volatility and fewer rent extraction opportunities. Our results imply that the repurchase completion rate is potentially an observable signal of managers’ broader ability to forecast and adapt to uncertain cash flows during the repurchase period.

Keywords: Managerial Ability, Management Earnings Forecasts, Open-Market Stock Repurchases

JEL Classification: D80, G30, M41

Suggested Citation

Cao, Jian and Cheng, Yun and Golden, Joanna and Zhang, Joseph, Managerial Ability, Forecasting Quality, and Open-Market Repurchase Program Completion (October 9, 2018). Review of Quantitative Finance and Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3267012

Jian Cao (Contact Author)

Florida Atlantic University ( email )

777 Glades Rd.
Boca Raton, FL 33431
United States
561-297-3727 (Phone)

Yun Cheng

State University of West Georgia ( email )

1601 Maple St
Carrollton, GA 30118-3030
United States

Joanna Golden

University of Memphis - School of Accountancy ( email )

223 Fogelman College Admin. Bldg.
Memphis, TN 38152
United States

Joseph Zhang

University of Memphis ( email )

FAB 200
School of Accountancy
Memphis, TN Tennessee 38152
United States

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