Do firms manipulate earnings before accelerated share repurchases?

Yung Chin Chiu, Woan-lih Liang*

*Corresponding author for this work

Research output: Contribution to journalArticle

6 Scopus citations

Abstract

This paper investigates whether firms engaging in accelerated share repurchases (ASRs) conduct downward earnings management prior to repurchase announcements. The 'commitment' and high 'speed' of share repurchases in ASRs appear to give ASR firms stronger incentive to deflate the pre-repurchase earnings than open market repurchase (OMR) firms, in order to reduce repurchase costs. However, in contrast to the OMRs of Gong, Louis, and Sun (2008), we do not find such earnings management for ASR firms. We conjecture that the Sarbanes-Oxley Act and greater public attention to financial reporting after financial scandals reduce the likelihood that ASR firms adopt accrual-based earnings management.

Original languageEnglish
Pages (from-to)86-95
Number of pages10
JournalInternational Review of Economics and Finance
Volume37
DOIs
StatePublished - 1 May 2014

Keywords

  • Accelerated share repurchases
  • Earnings management
  • Open market repurchases
  • Sarbanes-Oxley act

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