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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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 |
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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 |
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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. |
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text |
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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 |
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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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1770571141100863488 |