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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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    More about this item

    Keywords

    Share repurchase; Financing constraints; Earnings management;
    All these keywords.

    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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