The Effect of Unsuccessful Past Repurchases on Future Repurchasing Decisions

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. Includes supplemental appendix

Pillars of Growth in Nebraska\u27s Non-Metropolitan Economy

Agriculture is a critical part of Nebraska’s economy, and changes in the fortunes of agriculture play an important role in the success of the state’s non-metropolitan regions. Trends toward consolidation and rising productivity in agriculture, however, have raised concerns about the future of non-metropolitan Nebraska. Some citizens and policymakers have begun to wonder if the economy can create sufficient job opportunities for non-metropolitan residents. The answer to this question depends not only upon the relative strength of the agricultural sector, but also upon the presence of other industries that can join agriculture as pillars for employment growth in non-metropolitan Nebraska. This study, sponsored by the University of Nebraska Rural Initiative, brings together researchers from the University of Nebraska–Lincoln, the University of Nebraska at Omaha, and Creighton University to examine multiple dimensions of Nebraska’s non-metropolitan economy. In addition to agriculture, we will examine the fortunes of five other key industries: 1) manufacturing, 2) tourism, 3) trucking, 4) professional and technical services, and 5) information. This list contains industries that are traditional areas of rural economic development such as manufacturing, agriculture, and tourism, but also includes rapidly expanding industries in our state (trucking) or industries within a rapidly changing national economy (professional and technical services and information). National economic forecasts suggest that industries such as trucking, tourism, professional and technical services, and information will continue to add employment at a moderate to rapid pace over the next decade

TWO ESSAYS ON STOCK REPURCHASES AND INSIDER TRADING

The first essay examines how the outcome of prior repurchasing activity influences future repurchasing decisions. We find strong evidence that future decisions to repurchase equity are negatively influenced by poorly timed past repurchases. Specifically, we show that the past losses on stock repurchases reduce the propensity to engage in additional repurchases in the future. We find almost no evidence that past gains on repurchases positively or negatively influence future repurchasing activity. These results are robust to various firm characteristics, estimation and sampling methods. Further analyses show that losses on past repurchases influence dividend policy. We show that the dividend-repurchase substitution rate slows down for firms that experience losses in their past repurchase activities. Overall, results suggest that managerial behavioral biases have a strong influence on future repurchase decisions consistent with the loss-aversion concept of prospect theory. The second essay examines the relation between insider (officers and directors) open market transactions and the outcome of past insider trading to better understand what motivates insiders to trade. We find strong evidence that open market purchases made by insiders are negatively influenced by poorly timed insider purchases. Specifically, we show that the losses on insider purchases reduce the intensity of open market purchases. We find almost no evidence that past gains from insider trading positively or negatively influence open market purchases. These results are robust to various firm characteristics, estimation and sampling methods. The results suggest that managerial behavioral biases have a strong influence on future insider purchasing activity consistent with the loss-aversion concept of prospect theory. Further analyses show that loss aversion can enhance insider wealth by helping insiders avoid a loss of 5.7% over the course of the next year under certain circumstances while refraining from loss aversion under certain circumstances can help insiders to net an average of 8.14% over the following year. Advisers: Geoffrey C. Friesen and Emre Unl