The Effect of Unsuccessful Past Repurchases on Future Decisions

• 成果类型: Article
• 署名作者: Friesen, Geoffrey C.; Jeutang, Noel Pavel; Unlu, Emre
• 署名单位: University of Nebraska System; University of Nebraska Lincoln; University of South Dakota
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2020.3875
• 发表日期: 2022
• 页码: 716-739
• 关键词: behavior and behavioral decision making; repurchase and dividend payout policy; the effect of past experiences on future decisions; agency costs and risk-taking

摘要

We find that managers are less likely to repurchase stocks when they lose money on past stock repurchases but find no robust evidence that past gains on repurchases influence future repurchasing activity. This asymmetric sensitivity is strongest for young CEOs and those with the shortest tenure. Also, future repurchases are more sensitive to past repurchase losses for CEOs whose previous lifetime experience with the stock market is unfavorable. The sensitivity of future repurchases to past losses costs firms, on average, about 3.7% per year. When this cost is decomposed into systematic and idiosyncratic components, we find that nearly half (1.8%) comes from mistiming idiosyncratic shocks. Past losses on repurchases have a significant and negative impact on the CEO's future bonus and increase the likelihood that future CEO termination is involuntary. We also find that negative outcomes from past repurchases encourage the subsequent use of dividends. Our findings suggest that outcomes of past repurchases have economically significant consequences through both nonbehavioral (career concerns) and behavioral (snakebite effect) factors.