Repurchasing wealth: Executive stock options and opportunism in the Brazilian market
DOI:
https://doi.org/10.1590/1808-057x20262461.enKeywords:
executive compensation, share repurchases, agency conflictAbstract
This paper investigates the relationship between executive stock option-based compensation and share repurchases among
publicly traded firms in Brazil. This study contributes to the literature by shedding light on an underexplored dimension of
share repurchase activity in the Brazilian market, highlighting its relationship with governance mechanisms. While traditional
finance theory predicts investor indifference between dividends and share repurchases, subsequent research shows that firms
frequently favor repurchases due to considerations such as capital structure management, signaling effects, and managerial
incentives. In particular, executives with stock option-based compensation may have strong personal incentives to initiate
repurchase programs, as buybacks can support stock prices and directly increase the value of their holdings. Although stock
repurchases remain relatively modest in Brazil compared to the United States of America, our evidence shows that they
have meaningful implications for corporate governance, particularly executive compensation schemes. The results suggest
that repurchases are not merely an alternative payout mechanism but also a channel through which managers may increase
the private benefits extracted from the firm. The empirical analysis employs panel data regression models with firm and
year fixed effects to assess the link between executive compensation structures and the magnitude of share repurchases.
Additionally, we apply a panel logistic regression model to investigate whether firms with stock-based executive incentives
are more likely to undertake repurchases above the mean level. We also conduct a series of robustness checks to ensure the
consistency of results across specifications. We show that firms incorporating stock option-based compensation into executive
pay packages engage in significantly larger share repurchases. This evidence suggests that managers may strategically use
repurchase programs to amplify personal wealth, calling into question the extent to which stock-based incentives truly align
managerial and shareholder interests. These findings are pertinent not only for investors seeking to interpret firms’ payout
decisions but also for regulators and policymakers concerned with the effectiveness of corporate governance mechanisms
governing executive compensation and payout policies.
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