Bonus-Driven Repurchases

Yingmei Cheng, Jarrad Harford () and Zhang, Tianming (Tim)

Journal of Financial and Quantitative Analysis, 2015, vol. 50, issue 3, 447-475

Abstract: Using a large hand-collected database of chief executive officer (CEO) bonus structures, we find that when a CEO’s bonus is directly tied to earnings per share (EPS), his company is more likely to conduct a buyback. This effect is especially pronounced when a company’s EPS is right below the threshold for a bonus award. Share repurchasing increases the probability the CEO receives a bonus and the magnitude of that bonus, but only when bonus pay is EPS based. Bonus-driven repurchasing firms do not exhibit positive long-run abnormal returns.

Date: 2015
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