Share Repurchases and Managerial Reference Points

44 Pages Posted: 19 Mar 2021 Last revised: 30 Nov 2022

See all articles by Nicholas Clarke

Nicholas Clarke

Middle Tennessee State University - Department of Economics and Finance

Dylan Norris

Troy University

Andrew Schrowang

Florida State University - Department of Finance

Date Written: August 1, 2022

Abstract

This study examines the relation between managerial reference points and corporate payout policy. We find that share repurchase activity increases as a firm’s current stock price declines in relation to the price at which it previously repurchased shares. To facilitate a behavioral interpretation of this relation, we show that it weakens around stock splits, is asymmetric over gains and losses, and strengthens when prior repurchase prices are more salient. Further, the relation is not explained by traditional repurchase motives. The results suggest a behavioral pattern in which managers use prior repurchase prices as reference points for current repurchases.

Keywords: Reference Points, Payout Policy, Share Repurchases, Behavioral Finance

JEL Classification: G32, G41

Suggested Citation

Clarke, Nicholas and Norris, Dylan and Schrowang, Andrew, Share Repurchases and Managerial Reference Points (August 1, 2022). Available at SSRN: https://ssrn.com/abstract=3805055 or http://dx.doi.org/10.2139/ssrn.3805055

Nicholas Clarke (Contact Author)

Middle Tennessee State University - Department of Economics and Finance ( email )

Murfreesboro, TN 37132
United States

Dylan Norris

Troy University ( email )

Troy, AL 36082
United States

Andrew Schrowang

Florida State University - Department of Finance ( email )

821 Academic Way, RBA 311
P.O. Box 3061110
Tallahassee, FL 32306-1042
United States

HOME PAGE: http://sites.google.com/view/andrew-schrowang/home

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