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Stock Repurchases as an Earnings Management DevicePaul HribarUniversity of Iowa - Henry B. Tippie College of Business Nicole Thorne JenkinsUniversity of Kentucky - Von Allmen School of Accountancy, Gatton College of Business and Economics W. Bruce JohnsonUniversity of Iowa - Department of Accounting Journal of Accounting and Economics, Forthcoming Abstract: We investigate whether firms use stock repurchases to meet or beat analysts' EPS forecasts. We identify conditions under which repurchases increase EPS and document the frequency of accretive repurchases from 1988 to 2001. We find a disproportionately large number accretive stock repurchases among firms that would have missed analysts' forecasts without the repurchase. The repurchase-induced component of earnings surprises appears to be discounted by the market, and this discount is larger when the repurchase seems motivated by EPS management, although using the repurchase to avoid missing analyst forecasts appears to mitigate some of the negative stock price response.
Keywords: Stock repurchases, earnings management JEL Classification: G34, M43 Accepted Paper SeriesDate posted: November 7, 2005Suggested CitationContact Information
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