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:
Journal Article
Journal or Publication Title:
The Accounting Review
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/1400/1402
Subjects:
ID Code:
45475
Deposited By:
Deposited On:
11 Jul 2011 18:32
Refereed?:
Yes
Published?:
Published
Last Modified:
27 Nov 2020 01:43