Mandatory Disclosure and Firm Behavior: Evidence from Share Repurchases
Alice A. Bonaime
University of Arizona
July 25, 2014
Accounting Review, Forthcoming
This paper examines changes in corporate behavior around the 2003 modification to SEC Rule 10b-18, which mandates enhanced disclosure of repurchase transactions. Firms announce significantly fewer and slightly smaller open market repurchase plans in the enhanced disclosure environment. However, completion rates (the amount of stock repurchased as a percentage of the announced amount) significantly increase. More conservative announcement strategies and more aggressive completion rates are consistent with a decline in false signaling. Indeed, open market repurchase announcements are viewed as more credible on average in the enhanced disclosure environment; after controlling for firm characteristics, cumulative abnormal announcement returns are significantly greater in the high disclosure period. As with any analysis based on a regulatory change affecting all firms simultaneously, other unobservable, macroeconomic trends could have affected repurchase behavior. Nonetheless, these results are consistent with significant changes in corporate behavior around new mandatory disclosures.
Number of Pages in PDF File: 53
Keywords: Disclosure, information asymmetry, share repurchases, share buyback, repurchase completion rate
JEL Classification: G14, G30, G35, G38, M48, K22
Date posted: April 6, 2010 ; Last revised: July 26, 2014
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