Corporate Share Buybacks

Impact on Equity Incentive Pay and Shareholder Value

Gilbert Amahoro Ndayisaba, Abdullahi Dahir Ahmed

• Publisher: Routledge
• Year: 2023
• Print ISBN: 9781032131146
• eBook ISBN: 9781003815501
• Edition: 1
• Topic: Business
• Subtopic: Governance d'impresa
• Index: Business

This book integrates elements from agency theory and signalling theory and draws upon recent changes in the Australian payout policy and incentives pay for risk-averse employees to provide theoretical and empirical analyses that explain the paradox of the popularity of on-market stock buyback activities in a market environment characterised by reasonably high share prices.

The authors utilise a dynamic model that rationalises this paradox, which is divided into three components. The first component predicts that executives may be conducting on-market stock buyback programmes (SBPs) to adjust equity-based remuneration for risk-averse employees, thereby motivating their performance without granting them additional costly equity incentive plans (EIPs); the second component predicts that companies are likely to invest in SBPs to increase the ownership stakes of employees in the firm, thereby inducing risk-averse employees to increase their productivity which increases firm value; while the third component predicts that shareholders would benefit from incentives-induced buybacks if a firm's opportunity cost of funds spent on buybacks is less than its inverse price-to-earnings ratio.

The authors' findings highlight differences in the market responses towards announced repurchase motives, implying that not all incentives-induced buybacks are value-destructive buybacks. Specifically, the widespread assumption that SBPs stifle investments in human and capital stock may be subjective as the findings show that incentives-induced buybacks may be value-creative or value-destructive depending on share repurchase motives of SBPs.

This book will be a useful guide for scholars and researchers of finance, corporate finance, financial economics and financial accounting.

Table of contents

• Cover Page
• Half-Title Page
• Series Page
• Title Page
• Copyright Page
• Contents
• List of Figures
• List of Tables
• Declaration
• Acknowledgements
• List of Abbreviations
• Blurb
• About the Authors
• Synopses of the Book
• 1 Introduction
• 2 Equity Compensation and Stock Buybacks Background
• 3 Theoretical Framework on Incentives-Induced Buybacks
• 4 Literature Review
• 5 Research Design
• 6 Explaining the Net Effects of Stock Buyback Programmes on the Equity Incentive Plans for Risk-Averse Employees
• 7 Explaining the Effects of Incentives-Induced Buybacks on Stock Performance
• 8 Explaining the Effects of Incentives-Induced Buybacks on the Subsequent Firm Performance
• 9 Conclusion
• References
• Index