Investor heterogeneity, investor-management disagreement and share repurchases

• Main Authors: HUANG, Sheng, Thakor, Anjan V.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2013
• Subjects: stock repurchase; corporate payout; agreement; investor heterogeneity; Finance and Financial Management; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/3292; https://ink.library.smu.edu.sg/context/lkcsb_research/article/4291/viewcontent/Sheng_InvestorHeterogeneity_av.pdf
• Institution: Singapore Management University

This paper develops and tests a new theoretical explanation for 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 most likely to disagree with the manager tender their shares. Therefore, a firm is more likely to buy back shares when the level of investor-management agreement is lower, and agreement improves as a consequence. Moreover, dispersion of opinion among investors cannot explain repurchase activity once the stock price and investor-management agreement are controlled for. Overall, the evidence is consistent with firms strategically using repurchases to improve alignment between management and shareholders.