Title

Investor Heterogeneity, Investor-Management Agreement and Share Repurchase

Publication Type

Journal Article

Publication Date

7-2013

Abstract

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.

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Publication

Review of Financial Studies

Volume

26

Issue

10

First Page

2453

Last Page

2491

ISSN

0893-9454

Identifier

10.1093/rfs/hht043

Publisher

Oxford University Press

Additional URL

http://dx.doi.org/10.1093/rfs/hht043