Share repurchases as a potential tool to mislead investors

A rich literature argues that stock repurchases often serve as positive economic signals beneficial to investors. Yet due to their inherent flexibility, open-market repurchase programs have long been criticized as weak signals lacking commitment. We evaluate whether some managers potentially use buyback announcements to mislead investors. We focus on cases where managers were seemingly under heavy pressure to boost stock prices and might have announced a repurchase only to convey a false signal. For suspect cases, the immediate market reaction to a buyback announcement does not differ from that generally observed. However over longer horizons, suspect firms do not enjoy the improvement in economic performance otherwise observed. Suspect firms repurchase less stock. Further, managers in suspect firms have comparatively higher exposure to stock options, a potentially endogenous result suggesting greater sensitivity to both stock valuation and to future equity dilution. Overall, the results suggest only a limited number of managers may have used buybacks in a misleading way as “cheap talk.” Yet as theory also suggests, we find no long-run economic benefit to this behavior.
Publisher
Elsevier
Issue Date
2010-04
Keywords

Share repurchase; Earnings management; Managerial signal

Citation

Journal of Corporate Finance, Vol.16, No.2, pp.137-158

ISSN
0929-1199
DOI
10.1016/j.jcorpfin.2009.10.003
URI
http://hdl.handle.net/10203/25259
Appears in Collection
KGSF-Journal Papers(저널논문)
  • Hit : 203
  • Download : 1
  • Cited 0 times in thomson ci

qr_code

  • mendeley

    citeulike


rss_1.0 rss_2.0 atom_1.0