Earnings Management and Stock Performance following Accelerated Share Repurchases

DOI: 10.5176/2251-1997_AF53

Authors: Woan-lih Liang and  Yung-Chin Chiu

Abstract:

This paper investigates whether firms engaging in accelerated share repurchases (ASRs) conduct downward earninfs management prior to repurchase announcements. Firmd conducting ASRs are more likely to deflate pre-repurchase earnings than firms conducting open market repurchases (OMRs) because ASRs require firms to buy back the pre-commitment shares more quickly than OMRs. However, we do not find earnings management for ASR firms, while Gong et al. (2008) show manipulation for OMR firms. To explain this consistency, we show that prior-repurchase downward earnings management is not a general phenomenon for all time periods but exists prior to 2002.