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Stock repurchases and incentive compensation

Author: Christine M Jolls; National Bureau of Economic Research.
Publisher: Cambridge, MA : National Bureau of Economic Research, ©1998.
Series: Working paper series (National Bureau of Economic Research), working paper no. 6467.
Edition/Format:   eBook : Document : National government publication : EnglishView all editions and formats
Summary:
Abstract: A longstanding puzzle in corporate finance is the rise of stock repurchases as a means of distributing earnings to shareholders. While most attempts to explain repurchase behavior focus on the incentives of firms, this paper focuses on the incentives of the agents who run firms, as determined by those agents' compensation packages. The increased use of repurchases coincided with an increasing reliance on  Read more...
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Additional Physical Format: (OCoLC)39039599
Material Type: Document, Government publication, National government publication, Internet resource
Document Type: Internet Resource, Computer File
All Authors / Contributors: Christine M Jolls; National Bureau of Economic Research.
OCLC Number: 1111291841
Notes: "March 1998."
Reproduction Notes: Electronic reproduction. [S.l.] : HathiTrust Digital Library, 2011. MiAaHDL
Description: 30, [6] pages ; 22 cm.
Details: Master and use copy. Digital master created according to Benchmark for Faithful Digital Reproductions of Monographs and Serials, Version 1. Digital Library Federation, December 2002.
Series Title: Working paper series (National Bureau of Economic Research), working paper no. 6467.
Responsibility: Christine Jolls.

Abstract:

Abstract: A longstanding puzzle in corporate finance is the rise of stock repurchases as a means of distributing earnings to shareholders. While most attempts to explain repurchase behavior focus on the incentives of firms, this paper focuses on the incentives of the agents who run firms, as determined by those agents' compensation packages. The increased use of repurchases coincided with an increasing reliance on stock options to compensate top managers, and stock options encourage managers to choose repurchases over conventional dividend payments because repurchases, unlike dividends, do not dilute the per-share value of the stock. Consistent with the stock option hypothesis, I find that firms which rely heavily on stock-option-based compensation are significantly more likely to repurchase their stock than firms which rely less heavily on stock options to compensate their top executives. I find no such relationship between repurchases and restricted stock, an alternative form of stock-based compensation that, unlike stock options, is not diluted by dividend payments. These findings have implications for the study of other puzzles concerning firms' payout behavior, and for the study of the effects of executive compensation packages on managerial incentives.

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