Measuring the Agency Costs of Dispersed Ownership: The Case of Repurchase Initiations

45 Pages Posted: 7 Jun 2005 Last revised: 20 Mar 2011

See all articles by Ruth Gesser

Ruth Gesser

affiliation not provided to SSRN

Rony Moshe Halman

Tel Aviv University - Faculty of Management; Halman-Aldubi Pension Funds ltd.

Oded Sarig

Interdisciplinary Center (IDC) Herzliyah - Adelson School of Entrepreneuship; University of Pennsylvania - The Wharton School

Date Written: December 31, 2010

Abstract

Empirical investigations of the agency costs of dispersed ownership yield mixed results. A possible explanation for the lack of conclusive evidence is inaccurate measurement of the extent of the problem. We suggest that the extent of the problem be measured as theory suggests: by the wealth managers commit to their firms. We examine the relative performance of the different measures of the agency problem of dispersed ownership in the context of changes in payout policy affected by repurchase initiations. We find that the suggested measure - managerial equity wealth - performs better than the other measures: the proposed measure of the problem explains better than any other measure the market reaction to repurchase initiations. Our results are robust to several modifications of the main test.

Keywords: Agency cost, equity wealth, payout policy, repurchases

JEL Classification: G32, G35

Suggested Citation

Gesser, Ruth and Halman, Rony Moshe and Sarig, Oded H., Measuring the Agency Costs of Dispersed Ownership: The Case of Repurchase Initiations (December 31, 2010). Available at SSRN: https://ssrn.com/abstract=736623 or http://dx.doi.org/10.2139/ssrn.736623

Ruth Gesser (Contact Author)

affiliation not provided to SSRN

Rony Moshe Halman

Tel Aviv University - Faculty of Management ( email )

P.O. Box 39010
Ramat Aviv, Tel Aviv, 69978
Israel

Halman-Aldubi Pension Funds ltd. ( email )

2 Ben Gurion Rd
Ramat-Gan, 51232
Israel
972-03-6000267 (Phone)
972-3-6121800 (Fax)

Oded H. Sarig

Interdisciplinary Center (IDC) Herzliyah - Adelson School of Entrepreneuship ( email )

P.O. Box 167
Herzliya, 46150
Israel

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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