The Impact of Cumulative Discretionary Accruals on Open-Market Share Repurchase Decisions

2014 ◽  
Author(s):  
Ruei-Shian Wu ◽  
Huai-Chun Lo ◽  
Hsiou-wei Lin
Keyword(s):  
Market Share ◽  
Discretionary Accruals ◽  
Share Repurchase ◽  
Open Market ◽  
The Impact

Do Indian Companies Manage Earnings Before Share Repurchase?

2019 ◽  
Vol 21 (6) ◽  
pp. 1427-1447
Author(s):  
Sarthak Kumar Jena ◽  
Chandra Sekhar Mishra ◽  
Prabina Rajib
Keyword(s):  
Market Share ◽  
Abnormal Return ◽  
Negative Relationship ◽  
Small Sample ◽  
Share Repurchase ◽  
Open Market ◽  
Short Term ◽  
The Impact ◽  
The Relationship

This article aims to detect the opportunistic EM before share buyback and its impact on the short-term and long-term abnormal return. The study also examines the relationship between EM and promoters’ holdings in the company. A sample of 117 companies over 1998–2013 is analyzed in the study. The quality of earnings is measured using discretionary accruals (DAs), and it is calculated by four different methods, that is, the Healy model (1985), DeAngelo model (1986), modified Jones model (1995) and performance-matched model (2005). Cumulative abnormal return (CAR) is calculated for a short-term abnormal return at around 3 days of the share repurchase announcement. Post-buyback buy hold abnormal return (BHAR) for 1 year is calculated for long-term performance. The regression model is used to examine the impact of DA on both CAR and BHAR. The findings of the article show that share buyback companies manage their earnings downward in the previous year of share repurchase than the year of share purchase and the next year of share repurchase. The sample firms deflate their earnings more as compared to matching non-buyback firms. Firms manage their earnings downward before open market share repurchase than the tender offer. There is a significant and negative relationship between abnormal accruals and 1-year buy hold abnormal return post-open market share repurchase. The study further observed that there is a negative relationship between promoters’ holdings and EM. The study is constrained by the small sample size, so the results should be viewed by keeping these limitations in mind. The article is the first study on the detection of the opportunistic EM before buyback and examination of the relationship between the earnings quality and abnormal return in the Indian context.

Earnings smoothing around open-market share repurchases

2015 ◽  
Vol 14 (1) ◽  
pp. 64-80
Author(s):  
Hui Di ◽  
Dalia Marciukaityte
Keyword(s):  
Earnings Management ◽  
Market Share ◽  
Discretionary Accruals ◽  
Cash Flows ◽  
Share Repurchases ◽  
Open Market ◽  
Content Type ◽  
Operating Cash Flows ◽  
Earnings Smoothing ◽  
Open Market Share Repurchases

Purpose – The purpose of this paper is to examine whether firms engage in earnings decreasing management before share repurchases to mislead investors or to smooth earnings and improve earnings informativeness. Design/methodology/approach – The authors examine discretionary accruals and cash flows around open-market share repurchases. The primary discretionary accruals measure is industry- and performance-adjusted discretionary current accruals estimated from cash-flow data. Findings – Results show that, firms experience temporary increases in operating cash flows and use negative discretionary accruals to smooth earnings before share repurchases. Firms with the highest pre-repurchase cash flows use the lowest pre-repurchase discretionary accruals. Moreover, pre-repurchase discretionary accruals reflect expectations about future operating cash flows. Firms with the strongest deterioration in operating cash flows after repurchases use the lowest pre-repurchase discretionary accruals. These findings suggest that repurchasing firms use earnings management to increase smoothness and predictability of reported earnings rather than to mislead investors. Originality/value – This paper provides an alternative explanation to the finding of negative discretionary accruals before share repurchases. It adds to the literature on repurchases and earnings smoothing by showing that firms use earnings management around share repurchases to smooth earnings.

Does Share Repurchase Announcement Lead to Rise in Share Price? Evidence from India

2019 ◽  
Vol 20 (2) ◽  
pp. 420-433
Author(s):  
Paramita Mukherjee ◽  
Chanchal Chatterjee
Keyword(s):  
Stock Returns ◽  
Market Share ◽  
Share Price ◽  
Share Repurchase ◽  
Open Market ◽  
Individual Basis ◽  
Increasing Trend ◽  
Excess Stock Returns ◽  
Repurchase Announcements

In recent years, there is an increasing trend of share repurchase announcement by Indian firms. This article attempts to examine whether open market share repurchase announcements in India lead to excess stock returns and to identify the factors responsible for additional stock returns. Apart from a standard market method, the price behaviour is examined on an individual basis. The results show that the firms, on an average, do not experience price improvement after share repurchase. While 24 per cent of the firms lose and 10 per cent gain, the rest experience no change. In normal times, investors prefer small-cap companies, but post-announcement, promoters’ share and premium play an important role.

Informed Repurchases, Information Asymmetry and the Market Response to Open Market Share Repurchases

2018 ◽  
Vol 21 (03) ◽  
pp. 1850021 ◽  
Author(s):  
Bong Soo Lee ◽  
Nathan Mauck
Keyword(s):  
Information Asymmetry ◽  
Market Share ◽  
Abnormal Returns ◽  
Share Repurchases ◽  
Specific Information ◽  
Share Repurchase ◽  
Open Market ◽  
Forecast Dispersion ◽  
Size Number ◽  
Causality Tests

This paper relates informed repurchases to firm information asymmetry. We propose a new measure of informed repurchases, which is based on causality tests relating repurchase information to firm returns. Our results indicate that informed repurchases show larger abnormal returns surrounding the announcement of an open market share repurchase, which suggests the market at least partially recognizes informed repurchases. This holds after controlling for conventional information asymmetry proxies, such as firm size, number of analysts following, and analyst forecast dispersion, indicating that the market is aware of repurchase specific information not captured by traditional information asymmetry proxies. Informed repurchases demonstrate larger long-term abnormal returns at one, two, and three-year windows than high traditional information asymmetry repurchases.

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