The Impact of Equity Incentives on Stock Repurchases

DOI: https://doi.org/10.62517/jbm.202409201

Author(s)

Lu Zhang

Affiliation(s)

Faculty of Accounting and Finance, Anhui Finance and Trade Vocational College, Hefei, Anhui, China

Abstract

The relationship between the opportunistic motives of major shareholders or executives and stock repurchases has been a significant concern for scholars and regulators. This study, based on the perspective of equity incentives, utilizes a sample of Chinese A-share listed companies from 2007 to 2022, employing Tobit and Probit models for empirical analysis. The research reveals that exercisable equity incentives (unlocked) have a significantly positive impact on stock repurchases. Furthermore, through a mechanism study, it is found that media supervision and analyst supervision have a significant negative impact on the relationship between the two. These findings indicate that exercisable equity incentives (unlocked) lead executives to engage in stock repurchases with opportunistic characteristics. The study's findings are valuable for understanding the practice of stock repurchases in Chinese enterprises and implementing effective regulatory policies.

Keywords

Equity Incentives; Stock Repurchases; Executive Opportunism; Media Supervision; Analyst Oversight

References

[1] Vermaelen, T. (1984). Repurchase tender offers, signaling, and managerial incentives. Journal of Financial and Quantitative Analysis, 19 (2), 163-181. [2] Hovakimian, A., Opler, T., & Titman, S. (2001). The debt-equity choice. Journal of Financial and Quantitative Analysis, 36 (1), 1-24. [3]Bonaimé, A. A., Hankins, K. W., & Harford, J. (2014). Financial flexibility, risk management, and payout choice. The Review of Financial Studies, 27 (4), 1074-1101. [4]Deng, M. (2015). Equity structure, tax differences, and dividend payment choices. (2015-9), 41-48. [5]Wang, F., & Ni, J. (2016). Financing constraints, financial flexibility, and dividend policy choices. Economist, 4, 9. [6]Farre-Mensa, J., Michaely, R., & Schmalz, M. (2014). Payout policy. Annual Review of Financial Economics, 6 (1), 75-134. [7]Li, N., Cai, G., & Zheng, G. (2018). Comprehensive analysis framework of market value management: Theory and practice. Accounting and Economic Research, 32 (2), 21. [8]Zhang, Z., & Li, X. (2021). Economic policy uncertainty and stock repurchases: Inhibition or promotion? Journal of Harbin University of Commerce: Social Science Edition, 176 (1), 3-17. [9]Jensen, M. C., & Meckling, W. H. (2019). Theory of the firm: Managerial behavior, agency costs, and ownership structure. In Corporate Governance (pp. 77-132). Gower. [10]Cheng, Q., & Warfield, T. D. (2005). Equity incentives and earnings management. The Accounting Review, 80 (2), 441-476. [11]Edmans, A., Fang, V. W., & Lewellen, K. A. (2017). Equity vesting and investment. The Review of Financial Studies, 30 (7), 2229-2271. [12]Billett, M. T., & Yu, M. (2016). Asymmetric information, financial reporting, and open-market share repurchases. Journal of Financial and Quantitative Analysis, 51 (4), 1165-1192. [13]Chen, K., Xing, B., Wan, Q., & Xu, Y. (2021). Can the improvement of the national governance system restrain earnings management in companies? - Based on quasi-natural experiment evidence. Operations Research and Management Science, 030 (012), 226-231.