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Stock repurchases as an earnings management mechanism: The impact of financing constraints

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  • Farrell, Kathleen
  • Unlu, Emre
  • Yu, Jin

Abstract

Our paper provides evidence regarding the use of share repurchases as an earnings management mechanism in the presence of debt-financing constraints as well as the impact of these constraints on the use of accruals and other real earnings management techniques. We document that share repurchases are prevalent as a mechanism to increase earnings per share. Next, we show that the presence of debt-financing constraints discourages the use of repurchase-based earnings management. We also find that for firms more likely to be engaged in earnings management, high financing constraints appear to increase the use of accruals based earnings management and decrease the use of other real earnings management techniques.

Suggested Citation

  • Farrell, Kathleen & Unlu, Emre & Yu, Jin, 2014. "Stock repurchases as an earnings management mechanism: The impact of financing constraints," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 1-15.
  • Handle: RePEc:eee:corfin:v:25:y:2014:i:c:p:1-15
    DOI: 10.1016/j.jcorpfin.2013.10.004
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    Cited by:

    1. Đorđe Đukić & Mališa Đukić, 2015. "Interdependencies of Markets in Southeastern Europe and Buyback of Shares on Shallow Capital Markets: The Application of Cointegration and Causality Tests," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(4), pages 469-491, September.
    2. Liu, Harrison & Swanson, Edward P., 2016. "Is price support a motive for increasing share repurchases?," Journal of Corporate Finance, Elsevier, vol. 38(C), pages 77-91.
    3. Francis, Bill & Hasan, Iftekhar & Li, Lingxiang, 2015. "Evidence for the existence of downward real earnings management," Research Discussion Papers 13/2015, Bank of Finland.
    4. repec:bof:bofrdp:urn:nbn:fi:bof-201508131351 is not listed on IDEAS
    5. repec:kap:rqfnac:v:49:y:2017:i:3:d:10.1007_s11156-016-0603-z is not listed on IDEAS
    6. repec:eee:empfin:v:42:y:2017:i:c:p:90-108 is not listed on IDEAS

    More about this item

    Keywords

    Share repurchase; Financing constraints; Earnings management;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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