We are the first to document and study the use of Rule 10b5-1 preset repurchase plans. Though the rule’s original intent was to clarify conditions for enforcing insider trading laws, generally thought to apply to individuals classified as firm insiders, we find strong use of the rule at the firm level to repurchase company stock. We exploit this new and widespread form of payout to examine an issue at the core of payout decisions—the trade-off between commitment and financial flexibility. Relative to open market repurchases, preset plans provide an expanded repurchase window and increased legal cover, albeit at the cost of reducing repurchase flexibility and the option to time repurchases. These costs and benefits are significantly associated with Rule 10b5-1 adoption: Firms with alternative sources of financial flexibility are more likely to precommit to a repurchase plan, as are firms with a history of poor repurchase timing and firms constrained by blackout windows. Consistent with preset plans signaling commitment, Rule 10b5-1 repurchase announcements are associated with greater and faster completion rates, with more positive market reactions, and with more dividend substitution than open market repurchases. Lastly, we find that preset repurchase plans represent a unique payout tool whose introduction encouraged a different set of firms to buy back stock and significantly altered the payout landscape. This paper was accepted by David Simchi-Levi, Editor-in-Chief.

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This paper investigates the theory and practice of adjusting national income and product accounts for the stock and depletion of mineral assets. These green income adjustments can have a significant impact on the accounts of mineral-based developing economies and the macroeconomic policies that might be derived from these accounts. We propose that the popular methods used to adjust the accounts for the impacts of mineral assets and depletion are upwardly biased, and we present alternative stock valuation and depletion formulas that are empirically supported variants of the formulas currently in use.

Abstract:The capital asset pricing model (CAPM) receives both criticism and widespread adoption by practitioners and academics as the weighted average cost of capital (WACC) equity component. This study introduces two new costs of equity measures to address CAPM criticisms and provide new perspective on WACC estimates. The firm-based measure focuses on firm-investor cash flows while the market-based measure focuses solely on actual market returns. This study applies its firm and market-based WACC measures, along with the traditional CAPM-based WACC measure, to a broad sector-based cross section from 1972 to 2015. PUBLIC INTEREST STATEMENTThis work introduces two new equity finance measures to provide perspective on the troublesome equity component of a firm's overall cost of capital. The results confirm that the common equity finance measure, CAPM, is a fair measure for use in computing the overall cost of capital. The results also show that firminvestor cash flows differ significantly from CAPM predictions and actual market returns. In particular, the results suggest that market participants play a significant role alongside firms in actual market returns. Other results of this study provide new perspective on why small firms tend to have higher returns than large firms and raises questions on the role of firm cash flow generation in actual market returns. Finally, the comprehensive sector-based cross-sectional data can serve as a reference for practitioners in their cost of capital estimations.