Abstract: It is widely believed that undervaluation is an important determinant of share repurchases. However, empirical evidence on undervaluation remains mixed. This paper considers a novel measure of undervaluation that relies on the difference between management earnings forecasts and the corresponding consensus analyst forecasts. It finds that firms repurchase significantly more shares when they expect higher future earnings relative to market expectations. This finding holds regardless of the level of underlying valuations. The results do not appear to be driven by managerial misvaluation, overconfidence, or bias. Rather, my findings suggest that firms utilize insider information to efficiently time the market with respect to share repurchase decisions.
Abstract: In recent years, the shares of an increasing number of public firms is being held by older investors and associated institutional investors. The implications of older investors as owners on corporate policies and outcomes is investigated in this paper. The results show a negative correlation between the average age of investors and risk-taking behavior. Specifically, older investors are related to fewer mergers and acquisitions (M&As) and a lower pay-for-sensitivity related to CEO compensation. As a result, firms have less volatile returns and profits. Older investors affect corporate policies through two channels. First, older investors generally demand safer securities, which decreases capital costs for safer firms. Second, these investors also tend to invest in safer institutions, which has a direct impact on corporate policies. Additional analyses of a natural experiment with tax changes suggest that population aging has a causal impact on corporate risk-taking behavior.