Managerial ability, forecasting quality, and open-market repurchase program completion
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Prior research suggests that managers often fail to complete announced open market repurchase (OMR) plans due to uncertainty in the firm’s future cash flows. Although high-ability managers should manage cash flows more effectively to complete share reacquisitions, there is little evidence to support this idea. This paper investigates whether CEOs with superior ability to efficiently manage corporate resources are associated with higher OMR completion rates. Our main findings are that OMR program completion rates increase with managerial ability and that the association is further moderated by the quality of management earnings forecasts. Cross-sectional analyses indicate that the positive associations are more pronounced in firms with higher cash flow volatility and fewer rent extraction opportunities. Our results imply that the repurchase completion rate is potentially an observable signal of managers’ broader ability to forecast and adapt to uncertain cash flows during the repurchase period.
KeywordsManagerial ability Management earnings forecasts Open-market stock repurchases
JEL ClassificationsD80 G30 M41
We thank the editor, an anonymous referee, Peter Demerjian, Howard Griffin, Eunhee Kim, Kevin Pan, Changjiang Wang, and participants at the 2017 AAA Annual Meeting and the Accounting Conference at Temple University for helpful comments on previous versions of this paper. Cao acknowledges the financial support from the Stone Fellowship.
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