Voluntary Disclosure around Actual Share Repurchases

52 Pages Posted: 6 Sep 2007

See all articles by Paul Brockman

Paul Brockman

Lehigh University - College of Business

Inder K. Khurana

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business

Xiumin Martin

Washington University in Saint Louis - Olin School of Business

Abstract

We examine voluntary disclosure activities around actual share repurchases. We find that managers increase the percentage and magnitude of bad news announcements during the one-month period prior to repurchasing shares. We find weaker evidence that managers increase the percentage and magnitude of good news announcements during the one-month period following their repurchases. These results are consistent with Barclay and Smith's (1988) conjecture that share repurchases, unlike dividends, provide managers with additional incentives to manipulate information flows. We show that managers alter the content of voluntary disclosures by providing downward-biased earnings forecasts before repurchases. Further empirical analyses indicate that managers' propensity to alter information flows prior to share repurchases increases with their ownership interest in the firm. Overall, our findings suggest that as managers continue to substitute repurchases for dividends, increasing amounts of corporate payouts will be subject to opportunistic disclosure strategies.

Keywords: Voluntary disclosures, Management forecasts, Share repurchases

JEL Classification: G14,G35

Suggested Citation

Brockman, Paul and Khurana, Inder and Martin, Xiumin, Voluntary Disclosure around Actual Share Repurchases. Journal of Financial Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1011922

Paul Brockman (Contact Author)

Lehigh University - College of Business ( email )

Bethlehem, PA 18015
United States

Inder Khurana

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business ( email )

331 Cornell Hall
Columbia, MO 65211
United States
573-882-3474 (Phone)
573-882-2437 (Fax)

Xiumin Martin

Washington University in Saint Louis - Olin School of Business ( email )

Saint Louis, MO 63130
United States

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