This paper provides evidence that a firm’s repurchase frequency helps identify repurchase motives. Frequent repurchasers follow a stickier repurchase policy and are reluctant to reduce repurchases, even when earnings decline. Investors expect frequent repurchasers to continue repurchasing and react less strongly to both their repurchase announcements and to their actual repurchases. In contrast, infrequent repurchasers follow a flexible buyback policy and respond to changes in earnings in a timelier manner. They repurchase to signal undervaluation and disclose new information about future prospects. The growth in the proportion of firms that repurchase frequently explains why traditional motives fail to explain the recent surge in repurchases.

Presentations

Finance Management Association Annual Meeting (2018, Scheduled)

Finance Management Association Doctoral Student Consortium (2018, Scheduled)

What does repurchase frequency imply about repurchase motives?

We examine the relation between equity compensation and payout policy in light of the shift from options to restricted stock and the rise in performance-based compensation. Our results strongly support dilution as the primary channel through which compensation relates to payout policy; dividend protection no longer has first-order effects on payout. Analyses using a shock to compensation around mandatory option expensing and an instrumental variable approach suggest that the relation between dilution and payout is likely causal. Further, as the dilution channel predicts, equity compensation positively relates to repurchase frequency and thus repurchase timing.

Presentations

Finance Management Association Annual Meeting (2018, Scheduled)

Erasmus Executive Compensation Conference (2018)

Midwest Finance Association (2018)

Eastern Finance Association (2018)

The Evolution of Employee Compensation, Dilution, and Payout Policy

(With Alice Bonaimé, Kathleen Kahle, and David Moore)

Areas of Interest: Corporate Finance, Payout Policy, Managerial Reaction to Market Anomalies

Working Papers

Insider Reaction to Anomalies: Personal Trades versus Repurchases

(With Shyam Sunder and Sunil Teluja)

We investigate insiders' reaction to momentum anomaly and find that insiders as managers repurchase more if their firm is in the high momentum portfolio but trade against momentum in their personal capacity. Our results show that insiders act efficiently as private investors, but not as managers of the firm. Low momentum stocks with insider buying generate superior abnormal returns versus high momentum stocks with higher repurchases. On the other hand, for value stocks net insider demand is higher while repurchases are unaffected. We hypothesize that this difference could be due to insiders having a longer investing horizon in their personal capacity than as managers of the firm. Alternatively, insiders view momentum as mispricing and use repurchases to facilitate personal trades against it.