Agency Theory and Open-Market Share Repurchases: Evidence from Taiwan

Abstract

This study extends the literature of open-market share repurchases by detailing the role of the agency problem on the information content of repurchase announcements, the actual buyback, and the subsequent operating performance of repurchasing firms. It uses management ownership to measure the severity of firms' agency problems. Firms with greater management ownership are presumed to have less information asymmetry between managers and outside shareholders and therefore have a less severe agency problem. The findings suggest that firms with a less severe agency problem have more information in their repurchase announcements, buy back fewer shares, and perform better after the repurchase programs.