Research On Corporate Governance, Managerial Power And Share Repurchase

Share repurchase, originating in the United States, has been accepted gradually by the international capital market. Currently, relatively mature share repurchase systems have been established in countries with complete capital markets. Foreign scholars have obtained abundant results on the study of share repurchase, including hypothesis of capital structure optimization, signaling hypothesis, free cash flow hypothesis, and so on, which interpret the motivation and effects of share repurchase from different perspectives. Since the 1990s, share repurchase has received more and more attention in China, and there has been an increase of open market share-repurchase operations. At present, the majority of domestic research on share repurchases often uses the method of case study; empirical study with universal significance, however, is still insufficient.In this paper, the author makes empirical research on China’s open market share repurchase operations from the perspective of principle-agent relations, with focus on the relationship among corporate governance, managerial power and share repurchases. Principal component analysis is used to measure managerial power and the author selects the largest shareholder’s equity ratio and the proportion of independent directors as two indicators of corporate governance. Then, multiple regression analysis is used to study the relationship among the corporate governance, managerial power and share repurchase.Through the above study, the author comes to the following conclusions:(1) managerial power is significantly negatively correlated with the size of funds used to repurchase shares; (2) ownership concentration has a significant negative impact on managerial power; the proportion of independent directors, however, has no remarkable influence on managerial power; (3) the ownership concentration has a significant negative impact on the degree of correlation between managerial power and the size of funds used to repurchase shares; but there is no sign that the proportion of independent directors has similar effect on the degree of this correlation.