2017-06 , Management Innovation Research Center, Graduate School of Commerce and Management, Hitotsubashi University
We examine the relationship between the market reaction to management earnings forecasts and subsequent share repurchase announcements. Our results show that repurchase firms experience a larger market reaction to bad news of management earnings forecasts than non-repurchase firms before repurchase announcements. By contrast, there is little difference in the market reaction to good news between repurchase firms and non-repurchase firms. Additionally, little difference exists in the information content of management forecasts between repurchase firms and non-repurchase firms. In summary, our results imply that Japanese companies announce share repurchases in response to market overreactions to bad news in management earnings forecasts.