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Stock Repurchases as an Earnings Management Device

Posted: 7 Nov 2005  

Paul Hribar

University of Iowa - Henry B. Tippie College of Business

Nicole Thorne Jenkins

University of Kentucky - Von Allmen School of Accountancy, Gatton College of Business and Economics

W. Bruce Johnson

University of Iowa - Department of Accounting

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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

Suggested Citation

Hribar, Paul and Jenkins, Nicole Thorne and Johnson, W. Bruce, Stock Repurchases as an Earnings Management Device. Journal of Accounting and Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=831868

Paul Hribar (Contact Author)

University of Iowa - Henry B. Tippie College of Business ( email )

Dept. of Accounting
Iowa City, IA 52242-1000
United States
319-335-1008 (Phone)

Nicole Thorne Jenkins

University of Kentucky - Von Allmen School of Accountancy, Gatton College of Business and Economics ( email )

Lexington, KY 40506
United States

W. Bruce Johnson

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
319-335-1048 (Phone)
319-335-1956 (Fax)

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