TY - JOUR
T1 - Earnings and risk changes around stock repurchase tender offers
AU - Hertzel, Michael
AU - Jain, Prem C.
N1 - Funding Information:
*We thank Hank Bessembinder, Dan Brooks, Larry Dann, Paul Healy, Rick Smith, Jerry Zimmerman (the editor) and an anonymous referee, for helpful comments. The paper also benefitted from workshops at Arizona State University, Florida International University, the University of Illinois at Chicago, New York University, Purdue University, Rutgers University and Tulane University. Financial support from the Center for Financial Systems Research at Arizona State University and from the KPMG Peat Marwick Foundation is acknowledged. ‘The repurchase studies summarized in Smith (1986) include Masulis (19801, Dann (19811, Vermaelen (19811, and Rosenfeld (1982).
PY - 1991/9
Y1 - 1991/9
N2 - This paper provides evidence that repurchase tender offer announcements convey favorable information about the level and riskiness of future earnings. We show that analysts revise their forecasts of earnings per share upward following repurchase announcements. Repurchase announcement stock price reactions are positively correlated with revisions in short-term forecasts, but not correlated with revisions in long-term forecasts. Thus, the information is primarily about transitory changes in earnings. We also provide evidence that equity betas decline after repurchases. Our findings indicate that the equity beta decreases are due to decreases in the underlying riskiness of the firm's assets.
AB - This paper provides evidence that repurchase tender offer announcements convey favorable information about the level and riskiness of future earnings. We show that analysts revise their forecasts of earnings per share upward following repurchase announcements. Repurchase announcement stock price reactions are positively correlated with revisions in short-term forecasts, but not correlated with revisions in long-term forecasts. Thus, the information is primarily about transitory changes in earnings. We also provide evidence that equity betas decline after repurchases. Our findings indicate that the equity beta decreases are due to decreases in the underlying riskiness of the firm's assets.
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U2 - 10.1016/0165-4101(91)90014-F
DO - 10.1016/0165-4101(91)90014-F
M3 - Article
AN - SCOPUS:0040972906
SN - 0165-4101
VL - 14
SP - 253
EP - 274
JO - Journal of Accounting and Economics
JF - Journal of Accounting and Economics
IS - 3
ER -