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Network Centrality and Managerial Market-Timing Ability

Published online by Cambridge University Press:  08 January 2021

Theodoros Evgeniou Open the ORCID record for Theodoros Evgeniou [Opens in a new window] ,
Joel Peress Open the ORCID record for Joel Peress [Opens in a new window] ,
Theo Vermaelen Open the ORCID record for Theo Vermaelen [Opens in a new window]  and
Ling Yue Open the ORCID record for Ling Yue [Opens in a new window]
Theodoros Evgeniou
Affiliation:
INSEAD theodoros.evgeniou@insead.edu
Joel Peress
Affiliation:
INSEAD joel.peress@insead.edu
Theo Vermaelen*
Affiliation:
INSEAD
Ling Yue
Affiliation:
National University of Singapore ling.yue@insead.edu
*
theo.vermaelen@insead.edu (corresponding author)
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Abstract

We document that long-run excess returns following announcements of share buyback authorizations and insider purchases are a U-shaped function of firm centrality in the input–output trade-flow network. These results conform to a model of investors endowed with a large but finite capacity for analyzing firms. Additional links weaken insiders’ informational advantage in peripheral firms (simple firms whose cash flows depend on few economic links), provided investors’ capacity is large enough, but eventually amplify that advantage in central firms (firms with many links) as a result of investors’ limited capacity. These findings shed light on the sources of managerial market-timing ability.

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Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 2 , March 2022 , pp. 704 - 760
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 thank Judson Caskey (the referee) and Jarrad Harford (the editor) for very helpful and insightful comments.

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