Share Repurchases, Undervaluation, and Corporate Social Responsibility

37 Pages Posted: 28 Jan 2021

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

RWTH Aachen University - Department of Finance

Date Written: December 23, 2020

Abstract

Share repurchases have experienced growing popularity in recent years. The wealth transfer between shareholders associated with share repurchases has however been widely neglected in the literature, yet. Since managers are free to time repurchases so that ongoing shareholders profit at the expense of selling shareholders or vice versa, we investigate how the wealth transfer from share repurchases relates to a firm’s priorities regarding its stakeholder orientation. Based on the idea that firms with higher corporate social responsibility (CSR) performance are less shareholder oriented, we posit that their managers are less inclined to take ad-vantage 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 CSR performance announce their repurchases in periods of ceteris paribus lower undervaluation. This result also shows that managers are aware of the exploitation of selling shareholders occurring with most buybacks.

Keywords: share repurchase, corporate social responsibility, misvaluation

JEL Classification: G15, G35, M14

Suggested Citation

Bobenhausen, Nils and Knetsch, Andreas and Salzmann, Astrid Juliane, Share Repurchases, Undervaluation, and Corporate Social Responsibility (December 23, 2020). 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

RWTH Aachen University - Department of Finance ( email )

Templergraben 64
Aachen, 52056
Germany

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