Mandatory Repurchase Disclosure, Opportunistic Repurchases, and Their Real Effects

59 Pages Posted: 11 May 2021

See all articles by Meng Huang

Meng Huang

University of Toledo

Nicole Thorne Jenkins

University of Virginia - McIntire School of Commerce

Hong Xie

University of Kentucky - Von Allmen School of Accountancy

Date Written: May 3, 2021

Abstract


In 2003, the SEC amended Rule 10b-18, significantly increasing the disclosure requirements for and transparency of share repurchases with the intention to curb false signaling by management. Bonaimé (2015) finds that the 2003 SEC amendment reduced firms’ open market repurchase announcements and increased repurchase announcement completion rates, resulting in a decline in false signaling. In this paper, we examine the effect of the 2003 SEC amendment on firms’ opportunistic use of stock repurchases to meet or beat analyst earnings per share (EPS) forecasts and the resultant negative real effects. We find that the 2003 SEC amendment curtails opportunistic repurchases, enables the market to recognize and discount opportunistic repurchases, and eliminates the employment and investment reductions following opportunistic repurchases. Our evidence suggests that the increased transparency of share repurchases mandated by the 2003 SEC amendment has significantly altered both the corporate use of repurchases as an earnings management device and the negative real consequences of opportunistic repurchases.

Keywords: Transparency; mandatory disclosure; repurchases; earnings management; and fuzzy regression discontinuity design.

Suggested Citation

Huang, Meng and Jenkins, Nicole Thorne and Xie, Hong, Mandatory Repurchase Disclosure, Opportunistic Repurchases, and Their Real Effects (May 3, 2021). Available at SSRN: https://ssrn.com/abstract=3839651 or http://dx.doi.org/10.2139/ssrn.3839651

Meng Huang

University of Toledo ( email )

United States

Nicole Thorne Jenkins

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

HOME PAGE: http://https://www.commerce.virginia.edu/faculty/nt4jw

Hong Xie (Contact Author)

University of Kentucky - Von Allmen School of Accountancy ( email )

Lexington, KY 40506
United States
(859) 257-4648 (Phone)
(859) 257-3654 (Fax)

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