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Managerial Trustworthiness and Buybacks

Published online by Cambridge University Press:  02 July 2021

Sterling Huang Open the ORCID record for Sterling Huang [Opens in a new window] ,
Kaisa Snellman Open the ORCID record for Kaisa Snellman [Opens in a new window]  and
Theo Vermaelen Open the ORCID record for Theo Vermaelen [Opens in a new window]
Sterling Huang*
Affiliation:
Singapore Management University
Kaisa Snellman
Affiliation:
[email protected]
Theo Vermaelen
Affiliation:
INSEAD and [email protected]
*
[email protected] (corresponding author)
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Abstract

CEO trustworthiness is positively related to long-term excess returns after buyback announcements. When the Chief Executive Officer (CEO) is trustworthy, statements that the stock is undervalued are more credible. CEO trustworthiness is initially measured by the extent to which people in the county where the company headquarters is located trust each other. Further, the positive impact of trustworthiness on excess returns is higher when the CEO has been a long-term resident of a high-trust county, and correspondingly, trustworthy CEOs are less likely to be accused of financial misreporting. Our conclusions are confirmed when we use alternative measures of trustworthiness such as employee trust and CEO integrity.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 4 , June 2022 , pp. 1454 - 1485
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We are grateful to Gary Caton (the referee) and Paul Malatesta (the editor) for extremely helpful comments as well as to the workshop participants at the University of Bristol.

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