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- Title
Executive Bonus Contract Characteristics and Share Repurchases.
- Authors
Kim, Sunyoung; Ng, Jeff
- Abstract
We examine the importance of bonus contract characteristics, specifically, with respect to the relation between EPS-based bonuses and share repurchases. We find that managers are more (less) likely to repurchase shares and spend more (less) on repurchases when as-if EPS just misses (exceeds) the bonus threshold (maximum) EPS level. We find no such relation when as-if EPS is further below the threshold. We find weak evidence that managers of firms with as-if EPS just below the EPS target are more likely to repurchase shares and spend more on repurchases relative to firms with as-if EPS just above the EPS target. We further find that the incentive-zone slopes specified in the bonus contracts are positively associated with share repurchases. Managers making bonusmotivated repurchases do so at a higher cost. Together, our results highlight the importance of compensation design in motivating managers' behavior and aligning managers' incentives with shareholders.
- Subjects
EMPLOYEE bonuses; STOCK repurchasing; LABOR contracts; EXECUTIVE compensation; MOTIVATION (Psychology); EXECUTIVES; LABOR incentives; STOCKHOLDER wealth; ECONOMICS; FINANCE
- Publication
Accounting Review, 2018, Vol 93, Issue 1, p289
- ISSN
0001-4826
- Publication type
Article
- DOI
10.2308/accr-51731