Share repurchases and pay-performance sensitivity of employee compensation contracts

Research output: Contribution to journalArticlepeer-review

39 Scopus citations

Abstract

I show that share repurchases increase pay-performance sensitivity of employee compensation and lead to greater employee effort and higher stock prices. Consistent with the model, I find that after repurchases, employees and managers receive fewer stock option and equity grants, and that the market reacts favorably to repurchase announcements when employees have many unvested stock options. Managers are more likely to initiate share repurchases when employees hold a large stake in the firm. Moreover, since employees are forced to bear more risk in firms that repurchase shares, they exercise their stock options earlier and receive higher compensation.

Original languageEnglish (US)
Pages (from-to)117-150
Number of pages34
JournalJournal of Finance
Volume64
Issue number1
DOIs
StatePublished - Feb 1 2009
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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