Publication Type

Conference Paper

Version

acceptedVersion

Publication Date

6-2011

Abstract

This paper develops and tests a new theoretical explanation for why a firm conducts open-market stock repurchases. Investors may disagree with the manager about the firm’s investment projects. A repurchase causes a change in the investor base as investors who are more likely to disagree with the manager tender their shares. This model leads to the following predictions: first, a firm is more likely to buy back shares when the level of investor-management agreement is low, and second, the level of agreement improves following a repurchase. Our empirical tests provide strong support for these predictions. The results are robust to controls for information asymmetry, diversity of investor opinion, and other factors that may drive a firm’s share repurchase decision. Overall, the evidence is consistent with firms strategically using repurchases to improve alignment between management and shareholders.

Keywords

stock repurchase, corporate payout, agreement, investor heterogeneity

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Publication

China International Conference in Finance, July 4-7, 2010, Beijing, China; Financial Intermediation Research Society Conference 2011, June 6-8, Sydney

First Page

1

Last Page

56

Copyright Owner and License

Authors

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