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Why do firms repurchase their shares when they are overpriced?

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  • Oded, Jacob

Abstract

Firms are commonly assumed to engage in repurchase programs in order to take advantage of mispricing and buy their shares when they are underpriced. However, recent empirical evidence indicates these programs are often executed when shares are overpriced. We characterize the situations in which repurchase of overpriced shares is likely to occur and show it can actually be value enhancing. In the model, informed insiders trade-off private benefits from free cash waste against common benefits from waste prevention. Since private benefits from waste are negatively related to governance quality, our findings highlight the importance of having good governance in place when boards approve repurchase programs.

Suggested Citation

  • Oded, Jacob, 2026. "Why do firms repurchase their shares when they are overpriced?," Journal of Banking & Finance, Elsevier, vol. 182(C).
    • Handle: RePEc:eee:jbfina:v:182:y:2026:i:c:s0378426625001888
    DOI: 10.1016/j.jbankfin.2025.107568
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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