The Impact of Investor Heterogeneity in Beliefs on Share Repurchase

Abstract

In this paper, we propose a new share repurchasing model to show the impact of the heterogeneity of investor beliefs on share repurchase. We first provide a comprehensive survey on the literature of share repurchases which has not been considered by previous studies, to the best of our knowledge. We review both the theoretical model structures and the major empirical results including various measures of divergence of opinion developed in the literature. Our new repurchasing model uses actual share repurchases to show that investors’ divergence of opinion on the firm value matters in a manager’s share repurchase decision. The long-term stock price performance is consistent with our model predictions.