Investor Heterogeneity, Investor-Management Agreement and Open Market Share Repurchase

This paper develops and tests a new theoretical explanation for why a firm conducts open-market 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 more likely to disagree with the man...

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Main Authors: HUANG, Sheng, THAKOR, Anjan V.
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2011
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Online Access:https://ink.library.smu.edu.sg/lkcsb_research/3184
https://ink.library.smu.edu.sg/context/lkcsb_research/article/4183/viewcontent/HuangSZheInvestorRepurchase_06_2010.pdf
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spelling sg-smu-ink.lkcsb_research-41832020-03-18T02:27:38Z Investor Heterogeneity, Investor-Management Agreement and Open Market Share Repurchase HUANG, Sheng THAKOR, Anjan V. This paper develops and tests a new theoretical explanation for why a firm conducts open-market 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 more likely to disagree with the manager tender their shares. This model leads to the following predictions: first, a firm is more likely to buy back shares when the level of investor-management agreement is low, and second, the level of agreement improves following a repurchase. Our empirical tests provide strong support for these predictions. The results are robust to controls for information asymmetry, diversity of investor opinion, and other factors that may drive a firm’s share repurchase decision. Overall, the evidence is consistent with firms strategically using repurchases to improve alignment between management and shareholders. 2011-06-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/lkcsb_research/3184 https://ink.library.smu.edu.sg/context/lkcsb_research/article/4183/viewcontent/HuangSZheInvestorRepurchase_06_2010.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University stock repurchase corporate payout agreement investor heterogeneity Finance and Financial Management Portfolio and Security Analysis
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic stock repurchase
corporate payout
agreement
investor heterogeneity
Finance and Financial Management
Portfolio and Security Analysis
spellingShingle stock repurchase
corporate payout
agreement
investor heterogeneity
Finance and Financial Management
Portfolio and Security Analysis
HUANG, Sheng
THAKOR, Anjan V.
Investor Heterogeneity, Investor-Management Agreement and Open Market Share Repurchase
description This paper develops and tests a new theoretical explanation for why a firm conducts open-market 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 more likely to disagree with the manager tender their shares. This model leads to the following predictions: first, a firm is more likely to buy back shares when the level of investor-management agreement is low, and second, the level of agreement improves following a repurchase. Our empirical tests provide strong support for these predictions. The results are robust to controls for information asymmetry, diversity of investor opinion, and other factors that may drive a firm’s share repurchase decision. Overall, the evidence is consistent with firms strategically using repurchases to improve alignment between management and shareholders.
format text
author HUANG, Sheng
THAKOR, Anjan V.
author_facet HUANG, Sheng
THAKOR, Anjan V.
author_sort HUANG, Sheng
title Investor Heterogeneity, Investor-Management Agreement and Open Market Share Repurchase
title_short Investor Heterogeneity, Investor-Management Agreement and Open Market Share Repurchase
title_full Investor Heterogeneity, Investor-Management Agreement and Open Market Share Repurchase
title_fullStr Investor Heterogeneity, Investor-Management Agreement and Open Market Share Repurchase
title_full_unstemmed Investor Heterogeneity, Investor-Management Agreement and Open Market Share Repurchase
title_sort investor heterogeneity, investor-management agreement and open market share repurchase
publisher Institutional Knowledge at Singapore Management University
publishDate 2011
url https://ink.library.smu.edu.sg/lkcsb_research/3184
https://ink.library.smu.edu.sg/context/lkcsb_research/article/4183/viewcontent/HuangSZheInvestorRepurchase_06_2010.pdf
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