Anand Jha, Manoj Kulchania, Min-Jeong Kwon accepted for publication in Journal of Financial Stability
Mike Ilitch School of Business Associate Professors of Finance Anand Jha and Manoj Kulchania, along with Ilitch School doctoral candidate Min-Jeong Kwon, have been accepted for publication in the Journal of Financial Stability, which publishes theoretical and empirical economic and financial analysis of the causes, management, resolution and preventions of financial crises.
The article is titled “Stock Repurchasing and Corporate Social Responsibility.”
Stock repurchases are controversial. Researchers often view the positive association between free cash flow and the volume of the stock repurchases to be in the shareholders’ interest and the positive association between executive options and stock repurchases to be in the managers’ interest. Using firms’ corporate social responsibility (CSR) ratings as a measure of ethical culture—one that increases the cost of self-serving behavior for managers—we examine whether a firm’s CSR rating is related to its stock repurchase decisions. Although the baseline regression shows a positive association between CSR and repurchases, we find that CSR amplifies the positive association between free cash flow and stock repurchases and lessens the positive association between executive options and stock repurchases. These results indicate that ethical culture might play a role in repurchase decisions: it may encourage repurchases aligned with shareholders’ interests and discourage those primarily in managers’ interest. Furthermore, we also find that high CSR firms are associated with a greater completion rate of announced repurchase programs and receive more favorable stock market reaction to their repurchase announcements.