Managing EPS and Signaling Undervaluation as a Motivation for Repurchases: The Case of Accelerated Share Repurchases

Review of Accounting and Finance, Forthcoming

45 Pages Posted: 23 Apr 2013 Last revised: 31 Dec 2018

Date Written: July 27, 2018

Abstract

Although executives often mention signaling undervaluation as a motivation for accelerated share repurchases (ASRs), managing earnings per share (EPS) has been argued as a key alternative motivation in the financial press. The results reveal that 29 percent of ASR firms (i.e., EPS-suspect firms) would have missed the consensus EPS forecasts had they not implemented the repurchase. Managerial incentives—securing bonuses and maintaining reputation by avoiding EPS misses—appear to lie behind this opportunistic use of ASRs. Upward revision observed in analysts’ EPS forecasts upon the announcement of ASRs is short-lived, indirectly facilitating firms’ use of ASRs to meet or beat consensus forecasts. Investors, however, are not fooled by managers’ use of ASRs as an earnings management device. Unlike EPS-suspect firms, non-EPS-suspect firms exhibit positive abnormal operating performance during the post-ASR period, suggesting that these firms use ASRs as a signaling device rather than as an earnings management device.

Keywords: Corporate Payout Policy, Accelerated Share Repurchase, Managerial Opportunism, Earnings Management, Signaling

JEL Classification: M41, G35

Suggested Citation

Kurt, Ahmet C., Managing EPS and Signaling Undervaluation as a Motivation for Repurchases: The Case of Accelerated Share Repurchases (July 27, 2018). Review of Accounting and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2255203 or http://dx.doi.org/10.2139/ssrn.2255203

Ahmet C. Kurt (Contact Author)

Suffolk University ( email )

Boston, MA 02108
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
297
rank
99,615
Abstract Views
1,628
PlumX Metrics