Stock Repurchases and Executive Compensation Contract Design: The Role of Earnings per Share Performance Conditions

• 成果类型: Article
• 署名作者: Young, Steven; Yang, Jing
• 署名单位: Lancaster University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr.00000024
• 发表日期: 2011
• 页码: 703-733
• 关键词: real investment implications; option exercises; payout policy; CASH-FLOW; Dividends; management; determinants; INFORMATION; models; plans

摘要

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.