The Accounting Review Vol. 93 No. 1 2018
Executive Bonus Contract Characteristics and Share Repurchases
Abstract
We examine the importance of bonus contract characteristics, specifically, with respect to the relation between EPS-based bonuses and share repurchases. We find that managers are more (less) likely to repurchase shares and spend more (less) on repurchases when as-if EPS just misses (exceeds) the bonus threshold (maximum) EPS level. We find no such relation when as-if EPS is further below the threshold. We find weak evidence that managers of firms with as-if EPS just below the EPS target are more likely to repurchase shares and spend more on repurchases relative to firms with as-if EPS just above the EPS target. We further find that the incentive-zone slopes specified in the bonus contracts are positively associated with share repurchases. Managers making bonus-motivated repurchases do so at a higher cost. Together, our results highlight the importance of compensation design in motivating managers' behavior and aligning managers' incentives with shareholders.
- DOI
- 10.2308/accr-51731
- Volume
- 93
- Issue
- 1
- Pages
- 289-316
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref