Ownership Structure and Share Repurchases in an Emerging Market: Incentive Alignment or Entrenchment?

This paper examines how control and ownership structure affect share repurchases in an emerging market where controlling families derive large private benefits. Whereas firms with concentrated ownership often pay cash dividends, firms with weak control rights often repurchase shares. The magnitude of repurchase increases with weak control rights, but decreases with strong foreign ownership. These results hold even after controlling for M&A threats and managerial stock options. Additionally, stock returns are lower when share repurchase announcements are made by firms where controlling families have lower ownership and lower control rights. These results suggest that insiders can repurchase shares to protect control positions. JEL classification: G35, G32, G34