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Share reacquisitions, surplus cash, and agency problems

  • Oswald, Dennis
  • Young, Steven
Registered author(s):

    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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    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
    Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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