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Article: Share repurchases as a potential tool to mislead investors

TitleShare repurchases as a potential tool to mislead investors
Authors
KeywordsEarnings management
Managerial signal
Share repurchase
Issue Date2010
PublisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/jcorpfin
Citation
Journal of Corporate Finance, 2010, v. 16 n. 2, p. 137-158 How to Cite?
AbstractA 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.
Persistent Identifierhttp://hdl.handle.net/10722/85586
ISSN
2015 Impact Factor: 1.286
2015 SCImago Journal Rankings: 1.446
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorChan, Ken_HK
dc.contributor.authorIkenberry, DLen_HK
dc.contributor.authorLee, Ien_HK
dc.contributor.authorWang, Yen_HK
dc.date.accessioned2010-09-06T09:06:52Z-
dc.date.available2010-09-06T09:06:52Z-
dc.date.issued2010en_HK
dc.identifier.citationJournal of Corporate Finance, 2010, v. 16 n. 2, p. 137-158en_HK
dc.identifier.issn0929-1199en_HK
dc.identifier.urihttp://hdl.handle.net/10722/85586-
dc.description.abstractA 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.-
dc.languageengen_HK
dc.publisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/jcorpfinen_HK
dc.relation.ispartofJournal of Corporate Financeen_HK
dc.rightsJournal of Corporate Finance. Copyright © Elsevier BV.en_HK
dc.subjectEarnings management-
dc.subjectManagerial signal-
dc.subjectShare repurchase-
dc.titleShare repurchases as a potential tool to mislead investorsen_HK
dc.typeArticleen_HK
dc.identifier.openurlhttp://library.hku.hk:4550/resserv?sid=HKU:IR&issn=0929-1199&volume=16&issue=2&spage=137&epage=158&date=2010&atitle=Share+repurchases+as+a+potential+tool+to+mislead+investorsen_HK
dc.identifier.emailChan, K: konan@business.hku.hken_HK
dc.identifier.emailIkenberry, DL: daveike@illinois.edu-
dc.identifier.emailLee, I: inmool@gmail.com-
dc.identifier.emailWang, Y: yeanjyh@saturn.yzu.edu.tw-
dc.identifier.authorityChan, K=rp01047en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1016/j.jcorpfin.2009.10.003-
dc.identifier.scopuseid_2-s2.0-76749133634-
dc.identifier.hkuros162355en_HK
dc.identifier.volume16-
dc.identifier.issue2-
dc.identifier.spage137-
dc.identifier.epage158-
dc.identifier.isiWOS:000276013400001-
dc.identifier.citeulike6051442-

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