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Stock Repurchases and Executive Compensation Contract Design: The Role of Earnings per Share Performance Conditions

The Accounting review, 2011-03, Vol.86 (2), p.703-733 [Peer Reviewed Journal]

2011 American Accounting Association ;Copyright American Accounting Association Mar 2011 ;ISSN: 0001-4826 ;EISSN: 1558-7967 ;DOI: 10.2308/accr.00000024 ;CODEN: ACRVAS

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Title:
Stock Repurchases and Executive Compensation Contract Design: The Role of Earnings per Share Performance Conditions
Author: Young, Steven ; Yang, Jing
Subjects: Cash ; Cash flow ; Compensation ; Dividends ; Earnings management ; Earnings per share ; Executive compensation ; Executives ; Financial management ; Firm value ; Investment ; Modeling ; Pay for performance ; Pricing ; Repurchase ; Repurchasing ; Securities buybacks ; Shareholders ; Stock buyback ; Stock prices ; Stock shares ; Stockholders ; Studies ; Western Europe
Is Part Of: The Accounting review, 2011-03, Vol.86 (2), p.703-733
Description: 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 share-holders in the form of investment myopia.
Publisher: Sarasota: American Accounting Association
Language: English
Identifier: ISSN: 0001-4826
EISSN: 1558-7967
DOI: 10.2308/accr.00000024
CODEN: ACRVAS
Source: ProQuest Central

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Stock Repurchases and Executive Compensation Contract Design: The Role of Earnings per Share Performance Conditions

2011 American Accounting Association ;Copyright American Accounting Association Mar 2011 ;ISSN: 0001-4826 ;EISSN: 1558-7967 ;DOI: 10.2308/accr.00000024 ;CODEN: ACRVAS

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