Share repurchases,shareholder rights,and corporate governance provisions |
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| Affiliation: | 1. The University of North Florida, Jacksonville, FL 32224, USA;2. Kansas State University, Manhattan, KS, USA;1. College of Business, The University of Texas at San Antonio, San Antonio, TX 78249-0632, USA;2. Mays Business School, Texas A&M University, College Station, TX 77843-4353, USA;1. University of Arizona, Eller College of Management, 1130 East Helen St., Tucson, AZ 85721, United States;2. University of Kentucky, Gatton College of Business and Economics, 550 S Limestone, Lexington, KY 40506, United States |
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| Abstract: | Grounded in agency theory, this study seeks to explore how repurchase activity is influenced by the strength of shareholder rights. The empirical evidence shows that firms where shareholder rights are weaker tend to repurchase less stock. I argue that this is because managers of firms with weak shareholder rights are better able to exploit the weak shareholder rights and retain more cash within the firm, potentially to extract private benefits as alleged by the free cash flow hypothesis. Managers of firms with strong shareholder rights, on the contrary, are forced to disgorge cash to stockholders in the form of repurchases. In addition, I test the dividend-substitution hypothesis and find no evidence that repurchases substitute for dividends. |
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