A Wealth of Information to Identify Strategic Share Repurchases - Evidence from Daily Repurchase Disclosures
Abstract
Does frequent transparency help investors to timely identify share repurchases that aim at enhancing earnings per share (EPS) or meeting and beating analysts’ EPS forecasts? To empirically analyze this question, I exploit the daily transparency setting on actual share repurchases in Hong Kong. I find that even though investors can observe daily repurchase updates, they fail to identify EPS-enhancing repurchases throughout the fiscal year. Likewise, analysts do not revise their EPS forecast following the daily repurchase updates in a timely manner. On the earnings announcement date, however, investors significantly punish EPS-enhancing repurchases. Still, this paper shows that a timely identification of strategic repurchases would be desirable as EPS-enhancing repurchases are associated with detrimental shareholder value effects in the long term. Overall, this paper suggests that frequent transparency does not mechanically result in informed knowledge as disclosure processing costs might constrain the timely identification of opportunistic behavior.