We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Share repurchases and accounting conservatism.
- Authors
Lobo, Gerald J.; Robin, Ashok; Wu, Kean
- Abstract
The prior literature indicates that financial policy (e.g., payout policy) as well as accounting policy (e.g., conservatism) can be used to address incentive problems in firms but finds mixed evidence. We conjecture that stock repurchases, an increasingly popular form of payout, and conservatism are potential mechanisms to counter managerial propensity to engage in overinvestment using free cash flows. Consequently, we expect a negative relation between repurchases and conservatism as well as a stronger negative relation between these two mechanisms in firms with high levels of free cash flows. We find results consistent with these expectations. By contrast, we find a weaker negative relation between repurchases and conservatism when CEO tenure is higher, which confirms that more entrenched CEOs have less incentives to solve the overinvestment problem.
- Subjects
CONSERVATISM (Accounting); FREE cash flow; ECONOMIC policy; REDEMPTION (Law); STOCK repurchasing
- Publication
Review of Quantitative Finance & Accounting, 2020, Vol 54, Issue 2, p699
- ISSN
0924-865X
- Publication type
Article
- DOI
10.1007/s11156-019-00804-9