Investor Heterogeneity, Investor-Management Disagreement, and Share Repurchases
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-44872013-03-14T07:24:04Z Investor Heterogeneity, Investor-Management Disagreement, and Share Repurchases HUANG, Sheng Thakor, Anjan 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. 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. 2013-01-01T08:00:00Z text https://ink.library.smu.edu.sg/lkcsb_research/3488 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1570485 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 |
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stock repurchase corporate payout agreement investor heterogeneity Finance and Financial Management HUANG, Sheng Thakor, Anjan Investor Heterogeneity, Investor-Management Disagreement, and Share Repurchases |
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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. 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 |
author_facet |
HUANG, Sheng Thakor, Anjan |
author_sort |
HUANG, Sheng |
title |
Investor Heterogeneity, Investor-Management Disagreement, and Share Repurchases |
title_short |
Investor Heterogeneity, Investor-Management Disagreement, and Share Repurchases |
title_full |
Investor Heterogeneity, Investor-Management Disagreement, and Share Repurchases |
title_fullStr |
Investor Heterogeneity, Investor-Management Disagreement, and Share Repurchases |
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Investor Heterogeneity, Investor-Management Disagreement, and Share Repurchases |
title_sort |
investor heterogeneity, investor-management disagreement, and share repurchases |
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Institutional Knowledge at Singapore Management University |
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2013 |
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https://ink.library.smu.edu.sg/lkcsb_research/3488 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1570485 |
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