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Share reacquisitions, surplus cash, and agency problems

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  • Oswald, Dennis
  • Young, Steven
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    Abstract

    Share repurchases help alleviate agency costs of surplus cash by restricting management's scope to waste corporate resources. But why do self-interested managers agree to disgorge surplus cash in the first place? This study examines the intervening effect of managerial monitoring and incentive alignment mechanisms on the decision to distribute excess cash through a share repurchase. Findings indicate that repurchases substitute for cash retention decisions that would otherwise prove costly for shareholders, and that better managerial incentive alignment and closer monitoring by external shareholders are important factors stimulating such payouts.

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    File URL: http://www.sciencedirect.com/science/article/B6VCY-4PGPVSK-2/1/76a9dc353224848acaf7f4341baa934b
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 32 (2008)
    Issue (Month): 5 (May)
    Pages: 795-806

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    Handle: RePEc:eee:jbfina:v:32:y:2008:i:5:p:795-806

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    Web page: http://www.elsevier.com/locate/jbf

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    References

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    Cited by:
    1. Renneboog, Luc & Trojanowski, Grzegorz, 2011. "Patterns in payout policy and payout channel choice," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1477-1490, June.
    2. Cumming, Douglas & Zambelli, Simona, 2013. "Private equity performance under extreme regulation," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1508-1523.
    3. Andriosopoulos, Dimitris & Hoque, Hafiz, 2013. "The determinants of share repurchases in Europe," International Review of Financial Analysis, Elsevier, vol. 27(C), pages 65-76.
    4. Chen, Sheng-Syan & Ho, Kim Wai & Huang, Chia-Wei & Wang, Yanzhi, 2013. "Buyback behavior of initial public offering firms," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 32-42.
    5. Andriosopoulos, Dimitris & Andriosopoulos, Kostas & Hoque, Hafiz, 2013. "Information disclosure, CEO overconfidence, and share buyback completion rates," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5486-5499.
    6. Oded, Jacob, 2011. "Stock repurchases: How firms choose between a self tender offer and an open-market program," Journal of Banking & Finance, Elsevier, vol. 35(12), pages 3174-3187.
    7. Iskandar-Datta, Mai E. & Jia, Yonghong, 2012. "Cross-country analysis of secular cash trends," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 898-912.

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