The Corporate Calendar and the Timing of Share Repurchases and Equity-Based Compensation

Abstract

This study examines whether the CEO uses share repurchases to sell her equity grants at inflated stock prices, a concern regularly voiced in politics and media. We document that the corporate calendar—the firm's schedule of earnings announcements and blackout periods—induces a spurious positive correlation between share repurchases and equity-based compensation. Accounting for the corporate calendar, share repurchases are no longer correlated with the granting or vesting of equity. The CEO is more likely to buy equity when the firm announces a buyback program and less likely to sell equity when the firm actually buys back shares. Equity-based compensation increases the CEO’s propensity to set up a buyback program when it benefits long-term shareholder value. Overall, our results suggest that equity-based compensation promotes the adoption of value-increasing buyback programs, but it does not affect the execution of these programs.

Keywords: Payout policy, share repurchases, equity-based incentives, short-termism

JEL Classification: G14, G35, M12, M52