Managerial Overconfidence and Share Repurchases

Abstract

Following prior studies, we use keywords in press portrayals to gauge managerial overconfidence. We hypothesize that managerial overconfidence is related to a manager's perception that the firm is undervalued. Results from 2744 share repurchase programs launched by 783 listed firms in Taiwan confirm this hypothesis. We find that managerial overconfidence is positively correlated with the intensity of share repurchasing, which is measured by scale, execution, frequency, and the difference between the announced price and post-execution price. Moreover, the programs launched by overconfident managers were not undervalued and therefore were associated with reduced post-announcement returns.