||Stock Repurchase and Corporate Governance
||Graduate Institute of Finance & Banking
This thesis investigates whether corporate governance affects the sensitivity of stock repurchase to cash flow. A spectrum of variables such as board size, board independence, number of meetings, managerial ownership, management remuneration, the strength of shareholder’ rights, shareholder’s voting power, and leverage ratio are used to measure corporate governance. The sample size is derived from the period 2002 to 2009 in the US market. With the exception of management remuneration, other corporate governance variables such as board size, board independence, number of meetings, managerial ownership, shareholders’ voting power, and leverage ratio have significant and positive relation with the sensitivity of stock repurchase to cash flow. High Governance Index (poor governance) has significant negative relation with the sensitivity of stock repurchase to cash flow. Overall, the findings support the premise that companies with good corporate governance repurchase stock more when these corporations have larger amount of excess cash flow.
Table of Contents V
Chapter 1 Introduction 1
Chapter 2 Literature Review 4
2.1 Stock repurchases 4
2.2 Hypothesis 7
Chapter 3 Data and Methodology 8
3.1 Data selection 8
3.2 Variable Definitions 8
3.3 Empirical Model and Methodology 12
Chapter 4 Empirical Results 15
4.1 Descriptive analysis 15
4.2 Mean difference test 16
4.3 Pearson correlation 16
4.4 Multiple regression analysis 16
Chapter 5 Conclusions and Suggestions 19
5.1 Conclusions 19
5.2 Suggestions 20
Appendix: Independent variables and the result in this study 31
Table of Contents
Table 1: Individual governance provisions employed in the construction of the Governance Index 21
Table 2: Descriptive Statistic 22
Table 3: Mean Difference Test 23
Table 4: Pearson correlation matrix 24
Table 5: The OLS Regression Analysis-Board Structure and Number of Meetings 25
Table 6: The OLS Regression Analysis- Ownership Concentration and Compensation 26
Table 7: The OLS Regression Analysis-Takeover Provision, Voting, and Leverage 27
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