The Association between Management Stock Compensation and Share Repurchase Purposes

• Main Authors: Siang-Fu Syu, 許翔復
• Other Authors: Ni-Yun Chen
• Format: Others
• Published: 2015
• Online Access: http://ndltd.ncl.edu.tw/handle/88697106807004373710

碩士 === 國立東華大學 === 會計與財務碩士學位學程 === 103 === This study is aimed to investigate the association between management stock compensation and share repurchase purposes. This study uses managers’ share ownership and share option to proxy for their stock compensation. The Article 28-2 of Securities Exchange Act stipulates three purposes of share repurchase: Transferring shares to employees (Purpose 1); equity conversion in coordination with the issuance of convertible bonds (Purpose 2); maintaining the company’s credit and shareholders’ equity(Purpose 3). The results show that firms are more likely to announce share repurchase with purpose 3 when managers have a higher level of share ownership, indicating mangers may be driven by self-interest to impact share repurchase decisions in the board meeting. However, inconsistent with the expectation, the results show that firms are less likely to announce share repurchase with purpose 1 when managers have more stock option. This could be explained that share repurchase is not the only source to meet shares demanded for share option execution in cases when firms choose to issue shares, or a weak connection between share option issuance and subsequent execution. On the other hand, the results show that management stock compensation is positively associated with share repurchase with purpose 1 for firms with potentially the greatest agency problems–those with low management stock ownership and few investment opportunities or high free cash flow. This indicates that firms have a strong motive to alleviate the greatest agency problems by using share repurchase as a source of management stock compensation.