The Information Content of Share Repurchase Programs

Contrary to the implications of many payout theories, we find that announcements of open‐market share repurchase programs are not followed by an increase in operating performance. However, we find that repurchasing firms experience a significant reduction in systematic risk and cost of capital relative to non‐repurchasing firms. Further, consistent with the free cash‐flow hypothesis, we find that the market reaction to share repurchase announcements is more positive among those firms that are more likely to overinvest. Finally, we find evidence to indicate that investors underreact to repurchase announcements because they initially underestimate the decline in cost of capital.     

Dividends, Share Repurchases, and the Substitution Hypothesis

We show that repurchases have not only became an important form of payout for U.S. corporations, but also that firms finance their share repurchases with funds that otherwise would have been used to increase dividends. We find that young firms have a higher propensity to pay cash through repurchases than they did in the past and that repurchases have become the preferred form of initiating a cash payout. Although large, established firms have generally not cut their dividends, they also show a higher propensity to pay out cash through repurchases. These findings indicate that firms have gradually substituted repurchases for dividends. Our results also suggest that before 1983, regulatory constraints inhibited firms from aggressively repurchasing shares.     

Anchoring under Currency Substitution: A Ratchet Price Mechanism in the Housing Market

The currency substitution experienced by the Israeli real estate market in the past decades serves as a unique case for studying the effect of the anchoring heuristic on prices. We hypothesize that players utilize current and past exchange rates between the old and new currency to affect the closing price in their favor. Results of micro‐ and macro‐level estimations indicate that exchange rate fluctuations associate with an upward ratchet price effect. Furthermore, we find that the ratchet price mechanism disappears once the currency substitution is completed. These findings provide new evidence of the effect of anchoring on a market whose transactions involve substantial, long‐term economic consequences.