An empirical analysis of accounting conservatism surrounding share repurchases

Wilson X.B. Li, Tina T. He, Andrew Marshall, Gordon Y N TANG*

*Corresponding author for this work

    Research output: Contribution to journalJournal articlepeer-review

    3 Citations (Scopus)

    Abstract

    This study examines the change of the demand for accounting conservatism surrounding share repurchases for a sample of US listed firms between 2003 and 2013. We find that the extent of accounting conservatism decreases significantly post share repurchase, consistent with the view that share repurchases reduce excess cash and information asymmetry, and consequently the agency-cost demand for conservative accounting decreases. Further analysis finds this result holds only for financially unconstrained firms and firms with low or no financial distress risk, but there is no significant decrease in accounting conservatism for financially constrained firms or for firms with high financial distress risk. This suggests that share repurchases in these firms might result from other motives such as manager hubris, earnings management, or false signals to mislead investors, and thus cannot reduce the agency-based demand for accounting conservatism. Our results add further evidences to the literature on accounting conservatism and firm financial policies.

    Original languageEnglish
    Pages (from-to)609-627
    Number of pages19
    JournalEurasian Business Review
    Volume10
    Issue number4
    DOIs
    Publication statusPublished - 1 Dec 2020

    Scopus Subject Areas

    • Business, Management and Accounting(all)
    • Economics, Econometrics and Finance (miscellaneous)

    User-Defined Keywords

    • Accounting conservatism
    • Agency cost
    • Financial constraint
    • Financial distress risk
    • Information asymmetry
    • Share repurchases

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