Insider ownership and share collateral with the incentive for share repurchases

Abstract

Purpose

This study examines whether insider share ownership and personal share collateral affect corporate payout decisions.

Design/methodology/approach

This study estimates logit, Tobit and ordinary least squares regression models to explore how insider ownership is related to share repurchase probability, completion rates and the long-term performance following the repurchase announcements and how insider share collateral affects the above associations.

Findings

The results show that insider share ownership is negatively associated with the probability of announcing share repurchases and repurchase completion rates and is positively associated with the firm's post-announcement performance. This study further explores the incentive of insiders with high share collateral announcing share repurchases under a threat of margin call. For firms with a high percentage of insider share collateral, the results show that insider share ownership is associated with higher repurchase probability but is associated with lower repurchase completion rates and poorer post-announcement performance.

Originality/value

This study clarifies the interrelationships between insider ownership, insider share collateral and decisions in share repurchases and subsequent performance. This study provides evidence for both the convergence of interest and the entrenchment theories.

Citation

Chen, N.-Y. (2022), "Insider ownership and share collateral with the incentive for share repurchases", Managerial Finance, Vol. 48 No. 11, pp. 1627-1651. https://doi.org/10.1108/MF-01-2022-0002