Corporate Share Buybacks

Impact on Equity Incentive Pay and Shareholder Value

Gilbert Amahoro Ndayisaba, Abdullahi Dahir Ahmed

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English

Routledge
05 December 2023

Economics; Corporate finance; Investment & securities; Business strategy; Management of specific areas

Series: Banking, Money and International Finance

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.

By: Gilbert Amahoro Ndayisaba, Abdullahi Dahir Ahmed
Imprint: Routledge
Country of Publication: United Kingdom
Dimensions: Height: 234mm, Width: 156mm,
Weight: 580g
ISBN: 9781032131146
ISBN 10: 1032131144
Series: Banking, Money and International Finance
Pages: 208
Publication Date: 05 December 2023
Audience: College/higher education , Primary
Format: Hardback
Publisher's Status: Active

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 incentive-induced buybacks on stock performance 8. Explaining the effects of incentive-induced buybacks on the subsequent firm performance 9. Conclusion

Gilbert Amahoro Ndayisaba is a Lecturer in finance and accounting at the School of Accounting, Information Systems and Supply Chain, RMIT University, Melbourne, Australia. Abdullahi Dahir Ahmed is a Professor in Wealth Management and Head of the Department of Financial Planning and Tax at the School of Accounting, Information Systems and Supply Chain, College of Business and Law, RMIT University, Melbourne, Australia.