David R. Moore, Ph.D.

Research

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Publications

Payout Policy Tradeoffs and the Rise of 10b5-1 Preset Repurchase Plans (with Alice Bonaime and Jarrad Harford)

Management Science 66, 2762-2786

Rule 10b5-1 repurchase and ASR data is available here

We are the first to document and study the use of Rule 10b5 1 preset repurchase plans. Though the Rule's original intent was to clarify conditions for enforcing insider trading laws, generally thought to apply to individuals classified as firm insiders, we find strong use of the Rule at the firm level to repurchase company stock. We exploit this new and widespread form of payout to examine an issue at the core of payout decisions — the tradeoff between commitment and financial flexibility. Relative to open market repurchases, preset plans provide an expanded repurchase window and increased legal cover, albeit at the cost of reducing repurchase flexibility and the option to time repurchases. These costs and benefits are significantly associated with Rule 10b5-1 adoption: Firms with alternative sources of financial flexibility are more likely to pre-commit to a repurchase plan, as are firms with a history of poor repurchase timing and firms constrained by blackout windows. Consistent with preset plans signaling commitment, Rule 10b5-1 repurchase announcements are associated with greater and faster completion rates, with more positive market reactions, and with more dividend substitution than open market repurchases. Lastly, we find that preset repurchase plans represent a unique payout tool whose introduction encouraged a different set of firms to buy back stock and significantly altered the payout landscape.

Employee Compensation Still Impacts Payout Policy (with Alice Bonaime, Kathleen Kahle, and Alok Nemani)

Critical Finance Review 13:3-4 . 419-463

Employee compensation may impact payout policy (i) by incentivizing managers with non-dividend-protected options to favor repurchases over dividends and (ii) by diluting earnings, which firms can neutralize through share repurchases. Both the dividend-protection and dilution channels imply a positive relation between stock options and repurchases, but recent studies and trends suggest no decline in repurchases when option grants fall around mandatory option expensing, casting doubt upon a causal relation between equity compensation and payout. We examine this relation in light of the shift from options to restricted stock. Our results strongly support a positive relation between compensation and share repurchases through the dilution channel; dividend protection no longer has first-order effects on payout. Difference-in-differences analyses using a shock to compensation around mandatory option expensing and an instrumental variable approach suggest that the relation between dilution and payout is likely causal. Further, as the dilution channel predicts, equity compensation positively relates to repurchase frequency and thus repurchase timing.

Strategic Repurchases and Equity Sales: Evidence from Equity Vesting Schedules

Journal of Banking & Finance 146, 106717

This paper studies the strategic use and timing of share repurchases by insiders for personal gain. Using grant-level compensation data and a hand-collected sample of monthly repurchases, I find a positive causal relation between executive equity sales and share repurchases. I identify the relation using the vesting schedule of equity grants as an instrument for equity sales. This behavior is persistent across firm, executive, and governance characteristics. Both CFO and CEO vesting schedules impact repurchases, suggesting the CFO may also have influence over the execution of the repurchase program. There is minimal evidence of long-term value destruction. The results indicate executive contracts impact the execution of share repurchase programs.

Working Papers

Do Taxes Impact Payout? Evidence from the First Direct Tax on Repurchases (with Leonce Bargeron, Alice Bonaime, Yuling Guo, Stefan Obernberger, and Yi Zhou)

This paper studies the impact of taxes on payout by exploring firms' response to an unprecedented 1% excise tax on stock repurchases. Using monthly hand-collected data, we find that firms decrease repurchases by 5%-10% post-tax, with a more pronounced decline for firms most affected by the tax. Contemporaneous dividend increases fail to offset repurchase cuts, leading to a drop in total payouts. Investment and employment remain largely unchanged; instead, affected firms increase cash holdings. Our findings suggest taxes become a first-order consideration in payout policy when firms must internalize an easily quantifiable tax on a more flexible form of payout.

Works-in Progress

The Breadth, Motivation and Consequences of Egregious Repurchases (with Leonce Bargeron) Hiring local: CEOs and executives in the C-suite (with Joshua Pierce, Hai Tran, and Jason Turkiela)

Other Contributions to Research

Non-Standard Errors (with Menkveld, A. J., Dreber, A., Holzmeister, F., Huber, J., Johannesson, M., Kirchler, M., Neusuess, S., Razen M., Weitzel, U., et al.)

Journal of Finance 79:3, 2339-2390

In statistics, samples are drawn from a population in a data-generating process (DGP). Standard errors measure the uncertainty in estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence-generating process (EGP). We claim that EGP variation across researchers adds uncertainty—nonstandard errors (NSEs). We study NSEs by letting 164 teams test the same hypotheses on the same data. NSEs turn out to be sizable, but smaller for more reproducible or higher rated research. Adding peer-review stages reduces NSEs. We further find that this type of uncertainty is underestimated by participants.

Reproducibility in Management Science (with Milos Fisar, Ben Greiner, Christoph Huber, Elena Katok, Ali Ozkes, and the Management Science Reproducibility Collaboration)

Management Science 70:3, 1342-1356

With the help of more than 700 reviewers, we assess the reproducibility of nearly 500 articles published in the journal Management Science before and after the introduction of a new Data and Code Disclosure policy in 2019. When considering only articles for which data accessibility and hardware and software requirements were not an obstacle for reviewers, the results of more than 95% of articles under the new disclosure policy could be fully or largely computationally reproduced. However, for 29% of articles, at least part of the data set was not accessible to the reviewer. Considering all articles in our sample reduces the share of reproduced articles to 68%. These figures represent a significant increase compared with the period before the introduction of the disclosure policy, where only 12% of articles voluntarily provided replication materials, of which 55% could be (largely) reproduced. Substantial heterogeneity in reproducibility rates across different fields is mainly driven by differences in data set accessibility. Other reasons for unsuccessful reproduction attempts include missing code, unresolvable code errors, weak or missing documentation, and software and hardware requirements and code complexity. Our findings highlight the importance of journal code and data disclosure policies and suggest potential avenues for enhancing their effectiveness.