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Share Repurchases and Board Independence

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  • Grosman, Anna
  • Amore, Mario Daniele

Abstract

Share repurchases have come under criticism as they may be used for earnings management and take capital away from productive investment. However, share repurchases can also reduce the agency costs of free cash flow and offset the dilution of current shareholders. Whether firms engage in good or manipulative share repurchases can crucially hinge on the quality of corporate governance. Using UK firm panel data, we study the effect of independent directors on repurchase policies. Our results indicate that board independence increases the propensity to engage in share repurchases. Moreover, board independence attenuates the harmful effect of manipulative share repurchases on employment growth. Our approach exploits the passage of a corporate governance reform which provided a unique opportunity to tease out the causal impact of independent directors on share repurchases. Our findings advocate in favor of more active involvement of independent directors in payout policies.

Suggested Citation

  • Grosman, Anna & Amore, Mario Daniele, 2021. "Share Repurchases and Board Independence," MPRA Paper 109811, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:109811
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    References listed on IDEAS

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    More about this item

    Keywords

    corporate governance; boards; share repurchases; independent directors; employment; earnings management; UK;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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