Question: Young and Yang ( 2011) examined managers stock repurchase decisions, under which firms buy back outstanding shares on the market, for a sample of U.

Young and Yang ( 2011) examined managers’ stock repurchase decisions, under which firms buy back outstanding shares on the market, for a sample of U. K. companies during 1998– 2006. As the authors pointed out, stock repurchases are motivated by reducing dilution of shareholder interests created by exercise of ESOs, as a vehicle for earnings management, and for compensation purposes.

Required
a. Stock repurchases may or may not increase earnings per share (EPS). Suggest reasons why.
b. A manager claims in an interview that stock repurchases are a better way to manage earnings than by manipulation of accruals. Do you agree? Explain why or why not.
c. A compensation consultant claims that share buybacks are driven by provisions in managerial compensation contracts. Do you agree? Explain why or why not.

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a Stock repurchases lower the denominator of the EPS ratio For given net income this increases EPS However net income in the numerator will be decreased because of higher interest expense if the repur... View full answer

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