Investor heterogeneity, investor-management disagreement and share repurchases

Author

Sheng HUANG, Singapore Management UniversityFollow
Anjan V. Thakor, Washington University in St. Louis

Publication Type

Journal Article

Version

acceptedVersion

Publication Date

10-2013

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.

Keywords

stock repurchase, corporate payout, agreement, investor heterogeneity

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

Citation

HUANG, Sheng and Thakor, Anjan V.. Investor heterogeneity, investor-management disagreement and share repurchases. (2013). Review of Financial Studies. 26, (10), 2453-2491.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/3292

Copyright Owner and License

Authors

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.

Additional URL

https://doi.org/10.1093/rfs/hht043