Strategic Repurchases and Equity Sales: Evidence from Equity Vesting Schedules

Abstract

This paper studies the strategic use and timing of share repurchases by insiders for personal gain. Using grant level compensation data and a hand-collected sample of monthly repurchases, I find a positive causal relation between CEO equity sales and share repurchases. I identify the relation using the vesting schedule of equity grants as an instrument for equity sales. This behavior is stronger when the CEO is chairman of the board but otherwise is persistent across firm characteristics. However, these repurchases do not appear to destroy shareholder value. The results indicate CEO contracts motivate the timing of share repurchases.

Keywords: Share repurchase; share buyback; payout policy; option and stock grants; equity vesting; equity compensation CEO incentives and myopia.

JEL Classification: G14, G30, G35, M12