Share Repurchases, Undervaluation, and Stakeholder Orientation

45 Pages Posted: 28 Jan 2021 Last revised: 1 Aug 2022

See all articles by Nils Bobenhausen

Nils Bobenhausen

RWTH Aachen University - Chair for Business Administration, particularly Business Finance

Andreas Knetsch

RWTH Aachen University

Astrid Juliane Salzmann

Catholic University of Lille - IESEG School of Management; RWTH Aachen University - Department of Finance

Date Written: July 27, 2022

Abstract

This paper investigates how firms’ stakeholder orientation relates to the timing of share repurchases with respect to share mispricing and the corresponding wealth transfer between selling and ongoing shareholders. Based on the idea that firms with higher stakeholder orientation take the interests of all stakeholders into more equal consideration, we posit that their managers are less inclined to take advantage of the wealth transfer from selling to ongoing shareholders, which occurs if the firm is undervalued. Consistent with this notion, our results show that firms with higher corporate social responsibility (CSR) engagement announce their repurchases in periods of ceteris paribus lower undervaluation. Tackling the endogenous nature of CSR, we confirm this result using a proxy of stakeholder orientation at the country-level. Overall, our results provide insights into the motives behind share repurchases and demonstrate that stakeholder orientation is relevant for how managers consider the wealth transfer between groups of shareholders.

Keywords: share repurchase, corporate social responsibility, misvaluation, stakeholder orientation

JEL Classification: G15, G35, M14

Suggested Citation

Bobenhausen, Nils and Knetsch, Andreas and Salzmann, Astrid Juliane, Share Repurchases, Undervaluation, and Stakeholder Orientation (July 27, 2022). Available at SSRN: https://ssrn.com/abstract=3754283 or http://dx.doi.org/10.2139/ssrn.3754283

Nils Bobenhausen

RWTH Aachen University - Chair for Business Administration, particularly Business Finance ( email )

Templergraben 64
Aachen, 52056
Germany

Andreas Knetsch (Contact Author)

RWTH Aachen University ( email )

Templergraben 55
52056 Aachen, 52056
Germany

Astrid Juliane Salzmann

Catholic University of Lille - IESEG School of Management ( email )

Socle de la Grande Arche
1 Parvis de la Defense
Puteaux, Paris 92800
France

RWTH Aachen University - Department of Finance ( email )

Templergraben 64
Aachen, 52056
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
164
Abstract Views
690
Rank
272,055
PlumX Metrics