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.