Working Paper: CEPR ID: DP15240
Authors: Theodoros Evgeniou; Jol Peress; Theo Vermaelen; Ling Yue
Abstract: We document that long-run excess returns following announcements of share buyback authorizations and insider purchases are a U-shape function of firm centrality in the input-output trade flow network. These results conform to a model of investors endowed with a large but finite capacity for analyzing firms. Additional links weaken insiders’ informational advantage in peripheral firms (simple firms whose cash flows depend on few economic links) provided investors’ capacity is large enough, but eventually amplify that advantage in central firms (firms with many links) due to investors’ limited capacity. These findings shed light on the sources of managerial market timing ability.
Keywords: buybacks; market timing; network centrality; insider trading; market efficiency
JEL Codes: G32; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm centrality (L20) | long-run excess returns (G19) |
| firm centrality (L20) | greater excess returns (G11) |
| complexity of a firm's operations (L25) | relationship between centrality and long-run excess returns (G14) |
| centrality (D80) | relationship between centrality and long-run cumulative abnormal returns (CAR) is significant (G14) |
| centrality (D80) | long-run stock returns (G12) |
| effects of limited investor capacity (G31) | understanding managerial market timing ability (G14) |