Earnings management and firm performance following open-market repurchases

Guojin Gong, Henock Louis, Amy X. Sun

Research output: Contribution to journalArticlepeer-review

161 Scopus citations

Abstract

Both post-repurchase abnormal returns and reported improvement in operating performance are driven, at least in part, by pre-repurchase downward earnings management rather than genuine growth in profitability. The downward earnings management increases with both the percentage of the company that managers repurchase and CEO ownership. Pre-repurchase abnormal accruals are also negatively associated with future performance, with the association driven mainly by those firms that report the largest income-decreasing abnormal accruals. The study suggests that one reason firms experience post-repurchase abnormal returns is that post-repurchase realized earnings growth exceeds expectations formed on the basis of pre-repurchase deflated earnings numbers.

Original languageEnglish (US)
Pages (from-to)947-986
Number of pages40
JournalJournal of Finance
Volume63
Issue number2
DOIs
StatePublished - Apr 1 2008

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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