Share repurchasing practices of firms approaching bankruptcy

We examine whether financially distressed firms approaching bankruptcy employ performance-enhancing practices such as share buybacks. We analyse repurchasing firms' operating performance as they approach bankruptcy and determine whether these performance results differ from those of non-repurchasing pre-bankrupt firms. We further examine the magnitude of stock buybacks and how their relative size impacts firms' operating performance. We find that repurchasing firms have stronger operating performance than non-repurchasing ones, irrespective of the relative size of the transactions. Stock buybacks have no impact on operating performance of earnings managing firms. We find no evidence of a higher likelihood of earnings managing firms to engage in share repurchases. Earnings managing firms that do repurchase their shares perhaps do not do it to manage earnings, since in general, earnings managing firms, irrespective of their share repurchasing habits, are operationally weaker during the five-year period preceding the filings than their non-managing counterparts.