Opportunistic Stock Repurchases for Owner–Manager Control: Evidence from the Korean Stock Market

Abstract

AbstractWe examine whether opportunistic earnings management before a repurchase and long‐term performance after a repurchase depend on repurchase options and insider ownership. We find that the negative association between pre‐stock repurchase earnings management and abnormal long‐term performance after stock repurchase is more pronounced when firms choose the direct stock repurchase method over an indirect repurchase through a trust fund. Our findings also show that the negative association between pre‐repurchase accruals and long‐term performance under direct stock repurchases is only evident when the ownership percentage of managers and their affiliates is less than 50%. In addition, our main findings are more pronounced in firms with a high degree of corporate information asymmetry.