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Stock repurchases and executive compensation contract design: The role of earnings per share performance conditions

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Stock repurchases and executive compensation contract design: The role of earnings per share performance conditions. / Young, S E; Yang, J.

In: The Accounting Review, Vol. 86, No. 2, 2011, p. 703-733.

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@article{182427eecbb84022a48226add332eee9,
title = "Stock repurchases and executive compensation contract design: The role of earnings per share performance conditions",
abstract = "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.",
author = "Young, {S E} and J Yang",
year = "2011",
doi = "10.2308/accr.00000024",
language = "English",
volume = "86",
pages = "703--733",
journal = "The Accounting Review",
issn = "0001-4826",
publisher = "American Accounting Association",
number = "2",

}

RIS

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 -