Can Cheap Talk Be as Effective at Mitigating Agency Problems as Reputation Building? An Experimental Test in the Presence of a Noisy Performance Measure

Douthit, Jeremy; Kearney, Linwood Waitus; Stevens, Douglas E.

doi:10.2139/ssrn.1868986

Cited by 3 publications

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“…A recent paper by Douthit et al. () employs an experimental setting and argues that cheap‐talk can be an effective tool in reducing agency problems. By studying daily‐repurchase activity for undervaluation and other motives firms, we can gain insight into this question.…”

Section: Introductionmentioning

confidence: 99%

“…The examination of daily repurchase activity is important as it may answer the question of if cheap-talk is more important than action. A recent paper by Douthit et al (2011) employs an experimental setting and argues that cheap-talk can be an effective tool in reducing agency problems. By studying daily-repurchase activity for undervaluation and other motives firms, we can gain insight into this question.…”

Section: Introductionmentioning

confidence: 99%

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Share Repurchase Reasons and the Market Reaction to Actual Share Repurchases: Evidence from Australia

Akyol

Foo

2012

Int Rev Finance

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Using repurchase reasons provided by Australian companies for their stock repurchase programs, we ask if the market's response is different across repurchase motivations by examining actual daily share repurchases. We find that firms with the undervaluation motive experience a more positive stock price reaction when they report their repurchases to the market. We show that undervaluation motive firms repurchase fewer shares and have a lower program completion rate than other motives firms. During the 1‐year period following the repurchases, undervaluation motive firms do better than their control sample firms whereas other motive firms do not perform better or worse than their control sample firms. Overall, our results suggest that the undervaluation motive is a stronger signal than other repurchase motives, and contrary to the predictions of the standard signaling theories, management statements carry some value for the market. We also present some evidence suggesting that a costly action may not be needed for a signal to be credible.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%