Share repurchases and managerial reference points

This study examines the relationship between managerial reference points and corporate payout policy. We find that share repurchase activity increases as a firm's current stock price declines in relation to the price at which it previously repurchased shares. To facilitate a behavioral interpretation of this relation, we show that it weakens around stock splits, is asymmetric over gains and losses, and strengthens when prior repurchase prices are more salient. Further, the relation is not explained by traditional repurchase motives. The results suggest a behavioral pattern in which managers use prior repurchase prices as reference points for current repurchases.