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Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - Stock repurchases and executive compensation contract design: The role of earnings per share performance conditions
AU - Young, S E
AU - Yang, J
PY - 2011
Y1 - 2011
N2 - 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.
AB - 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.
U2 - 10.2308/accr.00000024
DO - 10.2308/accr.00000024
M3 - Journal article
VL - 86
SP - 703
EP - 733
JO - The Accounting Review
JF - The Accounting Review
SN - 0001-4826
IS - 2
ER -