Agency Implications of Equity Market Timing
Arizona State University (ASU)
Arizona State University
Arizona State University (ASU) - Finance Department
Dec 29, 2012
AFA 2013 San Diego Meetings Paper
We develop a rational expectations model to examine the conflicts of interest between different groups of shareholders in firms' market timing decisions. We show that current shareholders benefit from share repurchase timing, whereas future shareholders prefer issuance timing. Using a new empirical measure that captures the additional returns to shareholders from equity sales and stock repurchases, we document that managers of large firms time the market primarily through stock repurchases and are rewarded with higher compensation when they beat the market. In contrast, managers of small firms appear to cater more to future shareholders in their market timing decisions.
Number of Pages in PDF File: 52
Keywords: agency, market timing, repurchase
Date posted: March 20, 2012 ; Last revised: December 30, 2012
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