Stock repurchases and executive compensation contract design: The role of earnings per share performance conditions

Young, S E and Yang, J (2011) Stock repurchases and executive compensation contract design: The role of earnings per share performance conditions. The Accounting Review, 86 (2). pp. 703-733. ISSN 0001-4826

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Official URL: http://dx.doi.org/10.2308/accr.00000024

Abstract

We examine the link between firms’ stock repurchase activity and the presence of earnings per share (EPS) performance conditions in executive compensation contracts. Findings reveal a strong positive association between repurchases and EPS-contingent compensation arrangements. Further analysis suggests net benefits to shareholders from this association. Specifically, repurchasers experience larger increases in total payouts; the positive association between repurchases and cash performance is more pronounced for firms with EPS targets in the presence of surplus cash; undervalued firms with EPS targets are more likely to signal mispricing through a repurchase; and repurchasers with EPS conditions are associated with lower abnormal accruals. We find no evidence that EPS-driven repurchases impose costs on shareholders in the form of investment myopia.

Item Type:	Article
Journal or Publication Title:	The Accounting Review
Subjects:	UNSPECIFIED
Departments:	Lancaster University Management School > Accounting & Finance
ID Code:	45475
Deposited By:	ep_importer_pure
Deposited On:	11 Jul 2011 19:32
Refereed?:	Yes
Published?:	Published
Last Modified:	22 Apr 2013 16:30
Identification Number:
URI:	http://eprints.lancs.ac.uk/id/eprint/45475

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