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Bank stock repurchase extent and measures of corporate governance

Bank stock repurchase extent and measures of corporate governance Purpose – The purpose of this paper is to examine the relationship between the extent of stock repurchase and measures of corporate governance. Design/methodology/approach – Using a sample of stock repurchase announcements by banks after the 2002 tax reform, the paper uses an event study methodology to confirm the positive market response to stock repurchase announcements. A regression analysis is then used to study the determinants of the abnormal response to the bank stock repurchases. Regression analysis is also used to analyze whether corporate governance variables are significant determinants of bank extent of stock repurchases and size. Findings – Corporate governance techniques have little impact on market response to bank stock announcements, but are related to some extent to manager decisions regarding the stock repurchase. Board structure and executive/director stock ownership do not influence the market's response to repurchases. However, in some cases board structure is positively related to management's decision regarding the extent and size of the repurchase offer. Proportion of insider equity holdings has less influence on stock repurchase characteristics. Practical implications – Board structure may have a more important role to play in the banking industry in regards to managerial decision‐making than equity ownership. Equity ownership in banks tends to be driven by bank size and therefore may have less of an impact on reducing agency problems within the banking industry. Originality/value – The sample is taken after the 2002 tax reform, which provides an analysis of repurchases without tax effect implications. This is the first paper to study the contribution of board structure and equity ownership to stock repurchases in publicly‐traded banks. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Managerial Finance Emerald Publishing

Bank stock repurchase extent and measures of corporate governance

International Journal of Managerial Finance , Volume 4 (3): 20 – Jun 27, 2008

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Publisher
Emerald Publishing
Copyright
Copyright © 2008 Emerald Group Publishing Limited. All rights reserved.
ISSN
1743-9132
DOI
10.1108/17439130810878785
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to examine the relationship between the extent of stock repurchase and measures of corporate governance. Design/methodology/approach – Using a sample of stock repurchase announcements by banks after the 2002 tax reform, the paper uses an event study methodology to confirm the positive market response to stock repurchase announcements. A regression analysis is then used to study the determinants of the abnormal response to the bank stock repurchases. Regression analysis is also used to analyze whether corporate governance variables are significant determinants of bank extent of stock repurchases and size. Findings – Corporate governance techniques have little impact on market response to bank stock announcements, but are related to some extent to manager decisions regarding the stock repurchase. Board structure and executive/director stock ownership do not influence the market's response to repurchases. However, in some cases board structure is positively related to management's decision regarding the extent and size of the repurchase offer. Proportion of insider equity holdings has less influence on stock repurchase characteristics. Practical implications – Board structure may have a more important role to play in the banking industry in regards to managerial decision‐making than equity ownership. Equity ownership in banks tends to be driven by bank size and therefore may have less of an impact on reducing agency problems within the banking industry. Originality/value – The sample is taken after the 2002 tax reform, which provides an analysis of repurchases without tax effect implications. This is the first paper to study the contribution of board structure and equity ownership to stock repurchases in publicly‐traded banks.

Journal

International Journal of Managerial FinanceEmerald Publishing

Published: Jun 27, 2008

Keywords: Stocks; Banks; Corporate governance; Boards; Shareholders

References