Bank stock repurchase extent and measures of corporate governance

Abstract

Purpose

The purpose of this paper is to examine the relationship between the extent of stock repurchase and measures of corporate governance.

Design/methodology/approach

Using a sample of stock repurchase announcements by banks after the 2002 tax reform, the paper uses an event study methodology to confirm the positive market response to stock repurchase announcements. A regression analysis is then used to study the determinants of the abnormal response to the bank stock repurchases. Regression analysis is also used to analyze whether corporate governance variables are significant determinants of bank extent of stock repurchases and size.

Findings

Corporate governance techniques have little impact on market response to bank stock announcements, but are related to some extent to manager decisions regarding the stock repurchase. Board structure and executive/director stock ownership do not influence the market's response to repurchases. However, in some cases board structure is positively related to management's decision regarding the extent and size of the repurchase offer. Proportion of insider equity holdings has less influence on stock repurchase characteristics.

Practical implications

Board structure may have a more important role to play in the banking industry in regards to managerial decision‐making than equity ownership. Equity ownership in banks tends to be driven by bank size and therefore may have less of an impact on reducing agency problems within the banking industry.

Originality/value

The sample is taken after the 2002 tax reform, which provides an analysis of repurchases without tax effect implications. This is the first paper to study the contribution of board structure and equity ownership to stock repurchases in publicly‐traded banks.

Citation

Webb, E. (2008), "Bank stock repurchase extent and measures of corporate governance", International Journal of Managerial Finance, Vol. 4 No. 3, pp. 180-199. https://doi.org/10.1108/17439130810878785