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Controlling shareholders’ opportunistic use of share repurchases

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  • Hyo Kim
  • Hoje Jo
  • Soon Yoon

Abstract

This study examines how share repurchase and dividend policies are influenced by controlling shareholders in an emerging market. We maintain that the controlling shareholders can utilize share repurchase opportunistically, particularly when they exercise voting rights in excess of cash-flow rights. The evidence of Korean firms suggests that the wedge between the voting rights and cash-flow rights positively affects share repurchases but negatively affects cash dividends. We also find that share repurchases are not always supported by operating performances. The results indicate that firms may utilize share repurchases as a means to pursue private benefits of the controlling shareholders. We also document that share repurchases do not substitute for cash dividends, suggesting that share repurchases are not genuine distributions. Furthermore, we find that the wedge of share repurchases reduces firm value. Overall, our results indicate that the controlling shareholders of Korean firms use share repurchases opportunistically rather than strategically. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Hyo Kim & Hoje Jo & Soon Yoon, 2013. "Controlling shareholders’ opportunistic use of share repurchases," Review of Quantitative Finance and Accounting, Springer, vol. 41(2), pages 203-224, August.
    • Handle: RePEc:kap:rqfnac:v:41:y:2013:i:2:p:203-224
    DOI: 10.1007/s11156-012-0306-z
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    Cited by:

    1. Attig, Najah & El Ghoul, Sadok & Guedhami, Omrane & Zheng, Xiaolan, 2021. "Dividends and economic policy uncertainty: International evidence," Journal of Corporate Finance, Elsevier, vol. 66(C).
    2. Jara, Mauricio & López-Iturriaga, Félix J. & Torres, Juan Pablo, 2021. "Firm value and pyramidal structures: New evidence for family firms," Journal of Business Research, Elsevier, vol. 127(C), pages 399-412.
    3. Sheng-Syan Chen & Robin K. Chou & Yun-Chi Lee, 2020. "The effects of executive compensation and outside monitoring on firms’ pre-repurchase disclosure behavior and post-repurchase performance," Review of Quantitative Finance and Accounting, Springer, vol. 54(1), pages 111-158, January.
    4. Dimitris Andriosopoulos & Chrysovalantis Gaganis & Fotios Pasiouras, 2016. "Prediction of open market share repurchases and portfolio returns: evidence from France, Germany and the UK," Review of Quantitative Finance and Accounting, Springer, vol. 46(2), pages 387-416, February.
    5. Joanna Golden, 2018. "The Effect of Shareholder Rights and Information Asymmetry on Stock-Option-Related Repurchase Activity," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 21(02), pages 1-41, June.

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    More about this item

    Keywords

    Controlling shareholders; Share repurchases; Dividends; Wedge; Cash-flow rights; Voting rights; G32; G35;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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