Managerial overconfidence and the buyback anomaly

Panayiotis C. Andreou, Ilan Cooper, Ignacio Garcia de Olalla Lopez, Christodoulos Louca

Research output: Contribution to journalArticlepeer-review


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.

Original languageEnglish
Pages (from-to)142-156
Number of pages15
JournalJournal of Empirical Finance
StatePublished - Dec 2018
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2018 Elsevier B.V.


  • Abnormal returns
  • Asymmetric information
  • Buybacks
  • Overconfidence
  • Share repurchase

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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