Investor Heterogeneity, Investor-Management Agreement and Share Repurchase
This paper develops and tests a new theoretical explanation for 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 most likely to disagree with the manager tender their shares. Therefore, a firm is more likely to buy back shares when the level of investor-management agreement is lower, and agreement improves as a consequence. Moreover, dispersion of opinion among investors cannot explain repurchase activity once the stock price and investor-management agreement are controlled for. Overall, the evidence is consistent with firms strategically using repurchases to improve alignment between management and shareholders.
Finance and Financial Management | Portfolio and Security Analysis
Review of Financial Studies
Oxford University Press
HUANG, Sheng and Thakor, Anjan.
Investor Heterogeneity, Investor-Management Agreement and Share Repurchase. (2013). Review of Financial Studies. 26, (10), 2453-2491. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/3292