Abstract

http://ssrn.com/abstract=1316623
 
 

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Accounting Rules? Stock Buybacks and Stock Options: Additional Evidence


Paul A. Griffin


University of California, Davis - Graduate School of Management

Ning Zhu


China Academy of Financial Research (CAFR); Yale School of Management; University of California, Davis - Graduate School of Management

December 31, 2009

UC Davis Graduate School of Management Research Paper No. 08-09

Abstract:     
This paper finds that CEO stock options influence the choice, amount, and timing of funds distributed as a buyback. These results support two research expectations - that buybacks impose option-induced agency costs on outside shareholders, and that managers benefit from weak governance and unclear accounting in this choice. Increased CEO insider selling following a buyback also supports this agency cost perspective. Once we control for these option-related factors, we find no evidence that buyback activity associates reliably with EPS accretion from the reduction in common shares. We conclude that the popular use of buybacks as a form of cash distribution derives significantly from a strong contemporaneous relation between stock buybacks and CEOs’ use of stock options as compensation.

Number of Pages in PDF File: 44

Keywords: Stock buybacks, stock options, accounting rules, corporate governance, agency costs, management compensation, market reaction

JEL Classification: G12, G30, G32, G34, G35, J33, M41, M43, M44

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Date posted: December 17, 2008 ; Last revised: December 20, 2009

Suggested Citation

Griffin, Paul A. and Zhu, Ning, Accounting Rules? Stock Buybacks and Stock Options: Additional Evidence (December 31, 2009). UC Davis Graduate School of Management Research Paper No. 08-09. Available at SSRN: http://ssrn.com/abstract=1316623 or http://dx.doi.org/10.2139/ssrn.1316623

Contact Information

Paul A. Griffin (Contact Author)
University of California, Davis - Graduate School of Management ( email )
3102 Gallahger Hall
Davis, CA 95616
United States
(530) 752-7372 (Phone)
(425) 799-4143 (Fax)
HOME PAGE: http://www.gsm.ucdavis.edu/griffin/

Ning Zhu
China Academy of Financial Research (CAFR)
1954 Huashan Road
Shanghai P.R.China, 200030
China

Yale School of Management ( email )
135 Prospect Street
Box 208200
New Haven, CT 06520-8200
United States
HOME PAGE: http://pantheon.yale.edu/~nz26/
University of California, Davis - Graduate School of Management ( email )
One Shields Avenue
Davis, CA 95616
United States
530-752-3871 (Phone)
530-752-2924 (Fax)
HOME PAGE: http://www.gsm.ucdavis.edu/Faculty/Zhu/
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