Share Repurchases and Managerial Reference Points
45 Pages Posted: 19 Mar 2021 Last revised: 31 Jan 2023
Date Written: August 1, 2022
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: Suggested Citation