Share Repurchases and Board Independence

Anna Grosman and Mario Daniele Amore

MPRA Paper from University Library of Munich, Germany

Abstract: Share repurchases have come under criticism as they may be used for earnings management and take capital away from productive investment. However, share repurchases can also reduce the agency costs of free cash flow and offset the dilution of current shareholders. Whether firms engage in good or manipulative share repurchases can crucially hinge on the quality of corporate governance. Using UK firm panel data, we study the effect of independent directors on repurchase policies. Our results indicate that board independence increases the propensity to engage in share repurchases. Moreover, board independence attenuates the harmful effect of manipulative share repurchases on employment growth. Our approach exploits the passage of a corporate governance reform which provided a unique opportunity to tease out the causal impact of independent directors on share repurchases. Our findings advocate in favor of more active involvement of independent directors in payout policies.

Keywords: corporate governance; boards; share repurchases; independent directors; employment; earnings management; UK (search for similar items in EconPapers)
JEL-codes: G30 G35 J3 (search for similar items in EconPapers)
Date: 2021-09-19
New Economics Papers: this item is included in nep-cfn, nep-eur, nep-isf and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:109811

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