While positive, long-run abnormal returns following share repurchase announcements are substantially lower when CEOs are overconfident. This effect is particularly strong for (i) difficult to value firms, such as small, young, non-dividend paying, distressed, and having negative earnings firms, (ii) firms with poor past stock return performance and high book-to-market ratio, indicators of possible overreaction to bad news, and (iii) financially constrained firms. Overall, these results are consistent with the mispricing hypothesis as a motive for repurchases and as an explanation for the buyback anomaly. Additionally, irrespective of the CEO’s level of confidence, abnormal returns are considerably larger for financially constrained firms, implying their managers require larger undervaluation due to the higher cost of capital.
Lopez, Ignacio Garcia de Olalla & Andvik, Christian (2023)
Finansiell analyse og verdsettelse
[Textbook]. Universitetsforlaget
Dyrnes, Sverre & Lopez, Ignacio Garcia de Olalla (2023)
Verdsettelse – en introduksjon og oversikt over sentrale deler av verdsettelsesprosessen
Employing a press-based managerial overconfidence measure, we find that abnormal returns following share repurchases, while positive, are substantially lower when managers are classified as overconfident. This holds particularly for small, young, financially constrained, non-dividend paying and distressed firms, and firms with negative earnings, and poor past performance, all of which are more difficult to value. Corporate governance quality substantially improves the post-buyback stock performance when managers are overconfident, suggesting that governance quality is effective at curbing these managers. Overall, our results suggest that particularly when valuation is subjective and difficult, overconfident managers are more likely to misvalue their own stock prices than unconfident managers. Moreover, our results indicate that managers' perceived undervaluation of their shares is a central motive for share repurchase announcements. These results are only compatible with the overreaction hypothesis of the buyback anomaly.
Lopez, Ignacio Garcia de Olalla (2014)
The Effect of Trust on Taxation Arbitrage through Dividend Payments
[Conference Lecture]. Event
The dual income tax system, common in the Nordic countries from the early 90s, has been shown to provide a taxation arbitrage opportunity for medium and high income self-employed individuals, and for active owners of closely-held corporations. These individuals can reclassify their wages as capital income and distribute them in form of dividends, thereby minimizing tax paid on labor. In this paper, I show that high levels of trust in a region had a moderating effect on the dividend payout of Norwegian closely-held firms located in that region, in the period when dividends were exempt from taxes. The effect disappears on data after a taxation reform in 2006. To achieve these results, I use a unique database of high quality accounting information for Norwegian private companies. I argue that high levels of trust cause firm owners to be less inclined to engage in tax-arbitrage behaviors because they trust their tax money is being put to proper use. I also suggest that in communities where there are higher levels of trust and sociability, i.e., tighter communities, deviations from what is normative considered good citizenship are costlier for the deviant than in communities with lower levels of trust and sociability.
Lopez, Ignacio Garcia de Olalla (2014)
Explanatory Factors of the Capital Structure in Public and Private Firms
[Conference Lecture]. Event
Lopez, Ignacio Garcia de Olalla (2013)
Social Capital and Financial Decisions in Norwegian Private Firms
