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Share Repurchasing and the Policies of Stock-Options

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  • Rim El Houcine

    ()

  • Adel Boubaker

    ()

Abstract

The objective of this paper is to examine the relation between share repurchases and stock options. In fact, certain studies demonstrate that the development of stock option plans since the beginning of the 1990s is also considered one explanation for the increase in equity programs for repurchasing shares. We have tested the validity of our hypothesis on a sample of 77 French firms listed during the 2003-2008 period. The results demonstrate a positive link between the performance of near future exercise of employee stock options and share repurchases. The desire to avoid the dilution associated with the performance of stock options can thus be one of the motives for making share repurchases. The results subsequently demonstrate that directors holding a substantial number of stock options encourage companies to make share repurchases. On the other hand, we detected a negative relationship between the existence of managerial stock options and the augmentation of dividends.

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Bibliographic Info

Article provided by Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences in its journal International Journal of Academic Research in Accounting, Finance and Management Sciences.

Volume (Year): 4 (2014)
Issue (Month): 1 (January)
Pages: 175-187

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Handle: RePEc:hur:ijaraf:v:4:y:2014:i:1:p:175-187

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Web page: http://hrmars.com/index.php/pages/detail/Accounting-Finance-Journal

Related research

Keywords: Share repurchase; stock options; dilution; managers;

References

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  1. Armen Hovakimian, 2004. "The Role of Target Leverage in Security Issues and Repurchases," The Journal of Business, University of Chicago Press, vol. 77(4), pages 1041-1072, October.
  2. Christine Jolls, 1998. "Stock Repurchases and Incentive Compensation," NBER Working Papers 6467, National Bureau of Economic Research, Inc.
  3. Bens, Daniel A. & Nagar, Venky & Skinner, Douglas J. & Wong, M. H. Franco, 2003. "Employee stock options, EPS dilution, and stock repurchases," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 51-90, December.
  4. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  5. Yermack, David, 1995. "Do corporations award CEO stock options effectively?," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 237-269.
  6. Fama, Eugene F. & French, Kenneth R., 2001. "Disappearing dividends: changing firm characteristics or lower propensity to pay?," Journal of Financial Economics, Elsevier, vol. 60(1), pages 3-43, April.
  7. Philippe Desbrières, 1999. "Motifs et conséquences de l'adoption des stock-options," Working Papers CREGO 0991101, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
  8. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  9. Chinmoy Ghosh & John P. Harding & Ozcan Sezer & C.F. Sirmans, 2008. "The Role of Executive Stock Options in REIT Repurchases," Journal of Real Estate Research, American Real Estate Society, vol. 30(1), pages 27-44.
  10. Denis, Diane K. & McConnell, John J., 2003. "International Corporate Governance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(01), pages 1-36, March.
  11. Dittmar, Amy K, 2000. "Why Do Firms Repurchase Stock?," The Journal of Business, University of Chicago Press, vol. 73(3), pages 331-55, July.
  12. Ilona Babenko, 2009. "Share Repurchases and Pay-Performance Sensitivity of Employee Compensation Contracts," Journal of Finance, American Finance Association, vol. 64(1), pages 117-150, 02.
  13. Nohel, Tom & Tarhan, Vefa, 1998. "Share repurchases and firm performance:: new evidence on the agency costs of free cash flow," Journal of Financial Economics, Elsevier, vol. 49(2), pages 187-222, August.
  14. Michel Albouy & Tania Morris, 2006. "Les rachats d’actions au Canada:motivations et impact de l’activité économique," Revue Finance Contrôle Stratégie, revues.org, vol. 9(4), pages 5-32, December.
  15. Lambert, Richard A. & Lanen, William N. & Larcker, David F., 1989. "Executive Stock Option Plans and Corporate Dividend Policy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(04), pages 409-425, December.
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