Information disclosure, CEO overconfidence, and share buyback completion rates

Abstract

An open market share buyback is not a firm commitment, and there is limited evidence on whether firms repurchase the intended shares. Unlike US studies, we use data from unique UK regulatory and disclosure environment that allows to accurately measure the share buyback completion rates. We show that information disclosure and CEO overconfidence are significant determinants of the share buyback completion rate. In addition, we find that large and widely held firms that conduct subsequent buyback programs and have a past buyback completion reputation exhibit higher completion rates. Finally, we assess whether other CEO characteristics affect buyback completion rates and find that firms with senior CEOs who hold external directorships and have a longer tenure as CEO are more likely to complete the buyback programs. In sum, our results suggest there is a clear relationship between information disclosure, CEO overconfidence, and buyback completion rates

The effect of the CEO’s characteristics on EM: evidence from Jordan

“…Brown and Sarma, 2007), the CEO's overconfidence and capital structure decisions (Tomak, 2013), the CEO's overconfidence and earnings forecast (Schrand and Zechman, 2012), and the CEO's overconfidence and voluntary disclosure (e.g. Hirshleifer et al, 2012;Andriosopoulos et al, 2013). Nevertheless, the relationship between a CEO's personal characteristics and EM practices remains ambiguous and controversial.…”

“…Nalikka, 2009;Andriosopoulos et al, 2013). Age is measured by the difference between the CEO's date of birth and the year of the study period (Prendergast and Stole, 1996;Serfling, 2014).…”

“…Also, some researchers used the entrepreneurial status of a manager to indicate the degree of overconfidence, arguing that people who are entrepreneurs have a greater tendency towards overconfident behaviour (Barros and Silveira, 2009). Campbell et al (2011) and Andriosopoulos et al (2013) estimated CEO overconfidence by a late option exercise, which is a dummy variable that takes the value one for those CEOs who have held an option at any time during the sample period until its expiry, otherwise zero. Tate (2005a, 2005b) developed four different types of overconfidence measurement: i) Long Holder, ii) Holder 67%, iii) Net Buyer, and, iv) Press assessment of CEOs.…”

The performance of Taiwanese firms after a share repurchase announcement

“…Overall, the mean completion rate in Taiwan is 68.2 %, which is between 28.6 % in Canada, as reported by Ikenberry et al (2000), and 83.5 % in Japan, as reported by Zhang (2002). Andriosopoulos et al (2013) show that CEOs with confidence in themselves, longer tenure, and more external directorships tend to have a higher completion rate of their repurchase programs.…”

“…We use the completion rate of the repurchase program to examine whether firms that repurchased more shares would experience higher abnormal returns than firms that repurchased fewer. Andriosopoulos et al (2013) show that the higher completion rate for stock repurchases is positively related to the following circumstances: (1) large and widely held firms that conduct subsequent buyback programs have conducted a previous buyback; (2) firms with CEOs who hold external directorships with other firms and have a longer tenure as CEO are more likely to complete the buyback program. Thus, it is of interest to see if there is a difference in performance for firms with different repurchase completion rates.…”