Executive compensation and the credibility of share buyback announcements

Ahmed, Waqar, Taffler, Richard and Tosun, Onur Kemal ORCID: https://orcid.org/0000-0003-2551-1408 2025. Executive compensation and the credibility of share buyback announcements. Review of Quantitative Finance and Accounting 10.1007/s11156-025-01398-1

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Abstract

The extant literature views open market share repurchase announcements as a signal of undervaluation, but these lack characteristics of a credible signal and hence can be misleading. In this paper we assess the credibility of the repurchase announcement signal by observing the underlying managerial wealth and repurchase incentives as measured by their compensation arrangements. We find that both short- and longer-term returns (actual repurchases) are positively (negatively) related to manager wealth sensitivity to changes in stock price (Delta and equity holdings) and negatively (positively) related to managerial incentives to increase firm risk (high Vega). These findings are particularly strong for firms with higher information asymmetry, or undervaluation. Our results add to the existing literature by showing that the market appears to be using executive remuneration arrangements to assess the credibility of a repurchase announcement signal and responds accordingly.

Item Type:	Article
Date Type:	Published Online
Status:	In Press
Schools:	Schools > Business (Including Economics)
Publisher:	Springer Verlag
ISSN:	0924-865X
Date of First Compliant Deposit:	23 March 2025
Date of Acceptance:	25 February 2025
Last Modified:	24 Mar 2025 11:57
URI:	https://orca.cardiff.ac.uk/id/eprint/177098

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