Share Repurchases and Managerial Reference Points

Abstract

Corporate repurchase activity increases as a firm’s current stock price declines in relation to the price at which it previously repurchased shares. This relation holds up to various empirical specifications and robustness tests. The effect weakens around stock splits, is asymmetric in stock gains and losses, and strengthens when prior repurchases are larger than the sample median. The results suggest a behavioral pattern in which managers use prior repurchase prices as reference points for current repurchases.

Keywords: Reference Point, Stock Repurchases, Behavioral Finance

JEL Classification: G32, G41