Abstract

http://ssrn.com/abstract=1845620
 
 

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Share Repurchases, Equity Issuances, and the Optimal Design of Executive Pay


Jesse M. Fried


Harvard Law School; European Corporate Governance Institute (ECGI)

April 18, 2011

Texas Law Review, Vol. 89, No. 5, p. 1113, 2011

Abstract:     
This Article identifies a cost to public investors of tying executive pay to the future value of a firm’s stock - even its long-term value. In particular, such an arrangement can incentivize executives to engage in share repurchases (when the current stock price is low) and equity issuances (when the current stock price is high) that reduce “aggregate shareholder value,” the amount of value flowing to all the firm’s shareholders over time. The Article also puts forward a mechanism that ties executive pay to aggregate shareholder value and thereby eliminates the identified distortions.

Number of Pages in PDF File: 35

Keywords: share repurchases, equity issuances, executive pay, stock, stock options, restricted stock, corporate governance, agency costs, overvalued equity, insider trading, payout policy, seasoned equity offerings, executive compensation, manipulation

JEL Classification: G32, G34, G35, K22, M12

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Date posted: May 20, 2011  

Suggested Citation

Fried, Jesse M., Share Repurchases, Equity Issuances, and the Optimal Design of Executive Pay (April 18, 2011). Texas Law Review, Vol. 89, No. 5, p. 1113, 2011. Available at SSRN: http://ssrn.com/abstract=1845620

Contact Information

Jesse M. Fried (Contact Author)
Harvard Law School ( email )
1575 Massachusetts
Griswold Hall 506
Cambridge, MA 02138
United States
617-384-8158 (Phone)
HOME PAGE: http://www.law.harvard.edu/faculty/directory/10289/Fried
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
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