The sarbanes-oxley act, earnings management, and post-buyback performance of open-market repurchasing firms
Journal
Journal of Financial and Quantitative Analysis
Journal Volume
48
Journal Issue
6
Pages
1847-1876
Date Issued
2013-01
Author(s)
Huang, Chia Wei
Abstract
We examine how the Sarbanes-Oxley Act (SOX) affects pre-repurchase earnings management and its association with post-repurchase firm performance. Unlike prior pre-SOX studies, our post-SOX results indicate that open-market repurchasers do not engage in pre-buyback downward accrual-based earnings management. Audit committee independence, reforms in corporate governance structures, and changes in executives' equity holdings prompted by SOX may explain the findings. Post-SOX, the significant negative association between pre-repurchase abnormal accruals and post-repurchase performance disappears, the market reaction to repurchase announcements becomes significantly less favorable, and there is no evidence of any shift away from accrual-based to real earnings management. Copyright © Michael G. Foster School of Business, University of Washington 2013.
Subjects
FINANCIAL CONSTRAINTS; OPERATING PERFORMANCE; CORPORATE GOVERNANCE; STOCK REPURCHASES; TENDER OFFERS; CONSEQUENCES; INFORMATION; DIRECTORS; REAL; CASH
Publisher
CAMBRIDGE UNIVERSITY PRESS
Type
journal article