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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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    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: 09 Apr 2014 22:32
    Identification Number:
    URI: http://eprints.lancs.ac.uk/id/eprint/45475

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