Product Market Competition and Earnings Management around Open-market Repurchase Announcements

• In Event: Session A: Earnings Management/Disclosure

Abstract

This study examines how market competition influences the extent and type of earnings management activities around open market repurchases. We find that repurchasing firms operating in more competitive industries conduct significantly less downward accrual-based and real-activities management than those in less competitive industries. Furthermore, we document that both before and after the passage of the Sarbanes-Oxley Act (SOX), the negative relation between market competition and real management around repurchase announcements remains after SOX was passed. The evidence suggests that managers of repurchasing firms appear to replace accrual-based type of earnings manipulation with real earnings management.

Authors

• Wen-Chun Lin, National Taipei College of Business

• Tsai-Ling Liao, National Formosa University