Peer influence in share repurchases : managerial herding or strategic reaction?

Abstract

Peer influence is prevalent in various contexts. The clustering of share repurchase announcements might also be caused by peer influence. This study tries to figure out whether there is peer influence in share repurchase announcements by using the identification strategy of instrument variable method based on peers' stock return shocks. The empirical results of the 2SLS regression show that the peer influence does exist in announcing share repurchases. Under peer influence, this paper further examines whether there is managerial herding behavior in repurchase announcements, which is defined as mimicking behavior without rational judgment. The finding of the firm’s value decrease due to mimicking announcements suggests that managers do herd in announcing repurchases. In cross-sectional tests, the results show that the peer influence is less pronounced when managers have higher ability and when external monitoring is stronger, which supports the existence of managerial herding in repurchase announcements.