Stock Repurchases, Stock Compensation, and Firm Financial Performance

Elzbieta Wronska-Bukalska
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Elzbieta Wronska-Bukalska: Maria Curie-Sklodowska University, Poland

Management, 2015, vol. 10, issue 3, 201-217

Abstract: In this paper I examine how share repurchase activities are associated with employee compensation plans and firm performance. I assume that repurchasing shares in order to pay managers/ employees with shares is an incentive and leads to higher effort and better firm financial performance. I perceive firm financial performance in terms of profitability and liquidity (not stock prices). The empirical research was carried out for the years 2004–2013 and for companies that repurchased their share and distributed them among employees/managers as an incentive. I analysed how the financial performance had changed two years after the share repurchase. The empirical evidence in this study suggests that share repurchase is carried out not only as a substitute for dividend payment. Quite often companies announce share repurchase in order to conduct employees/managers incentive program. However, I found that repurchasing shares in order to conduct employees/managers share incentive programs does not lead to firm financial performance improvement.

Keywords: share repurchase; buy back; incentive program; compensation plan; firm performance (search for similar items in EconPapers)
Date: 2015
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