Agency Implications of Equity Market Timing

52 Pages Posted: 20 Mar 2012 Last revised: 27 Apr 2015

Yuri Tserlukevich

Arizona State University (ASU)

Ilona Babenko

Arizona State University

Pengcheng Wan

Arizona State University (ASU) - Finance Department

Date Written: Dec 29, 2012

Abstract

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.

Keywords: agency, market timing, repurchase

Suggested Citation

Tserlukevich, Yuri and Babenko, Ilona and Wan, Pengcheng, Agency Implications of Equity Market Timing (Dec 29, 2012). AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2024566 or http://dx.doi.org/10.2139/ssrn.2024566

Yuri Tserlukevich (Contact Author)

Arizona State University (ASU) ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

Ilona Babenko

Arizona State University ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

Pengcheng Wan

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

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