When a buyback isn't a buyback: Open market repurchases and employee options

This paper examines how stock options affect the decision to repurchase shares. Firms announce repurchases when executives have large numbers of options outstanding and when employees have large numbers of options currently exercisable. Once the decision to repurchase is made, the amount repurchased...

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Bibliographic Details
Published inJournal of financial economics Vol. 63; no. 1; p. 235
Main Author Kahle, Kathleen M
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier Sequoia S.A 01.01.2002
Subjects
Employees
Executives
Rates of return
Securities buybacks
Stock options
Studies
United States > US
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Summary:This paper examines how stock options affect the decision to repurchase shares. Firms announce repurchases when executives have large numbers of options outstanding and when employees have large numbers of options currently exercisable. Once the decision to repurchase is made, the amount repurchased is positively related to total options exercisable by all employees but independent of managerial options. These results are consistent with managers repurchasing both to maximize their own wealth and to fund employee stock option exercises. The market appears to recognize this motive, however, and reacts less positively to repurchases announced by firms with high levels of nonmanagerial options.
ISSN:0304-405X
1879-2774