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Journal of Accounting and Economics Vol. 36 No. 1-3 2003

Employee stock options, EPS dilution, and stock repurchases

Daniel A. Bens1; Venky Nagar2; Douglas J. Skinner2,1; M. H. Franco Wong1

1 University of Chicago · 2 University of Michigan–Ann Arbor

Abstract

We investigate whether corporate executives’ stock repurchase decisions are affected by their incentives to manage diluted earning per share (EPS). We find that executives increase the level of their firms’ stock repurchases when: (1) the dilutive effect of outstanding employee stock options (ESOs) on diluted EPS increases, and (2) earnings are below the level required to achieve the desired rate of EPS growth. We also find that executives’ repurchase decisions are not associated with actual ESO exercises, suggesting that they are driven by incentives to manage diluted but not basic EPS, and strengthening our earnings management interpretation.

DOI
10.1016/j.jacceco.2003.10.006
Volume
36
Issue
1-3
Pages
51-90
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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