Share Repurchase Announcements Together with Earnings Forecast Revisions and Long-Term Stock Performance: Evidence from Japan

Abstract

This article examines whether the presence of large revisions in management EPS forecasts alongside repurchase announcements offers a more appropriate measurement for ex-post actual repurchase implementations than do repurchase programme size and earnings managements before repurchase announcements. I also investigate whether repurchase announcements alongside large revisions in management EPS forecasts are over-performed relative to repurchase announcements with no or slight revisions in management EPS forecasts. The results empirically suggest that repurchase programmes are likely to be implemented if announcements accompany large revisions in management EPS forecasts. This finding implies that EPS forecasts revisions around repurchase programmes announcements convey more information on the ex-post actual implementation of repurchase programmes than do repurchase programmes size and earnings management. The findings also indicate that management reporting behaviour regarding EPS forecast revisions is significantly and positively related to long-term stock performance, suggesting that investors evaluate the reliability of the signal in each repurchase programme based on the presence or absence of EPS forecast revisions. These results are robust concerning measurements of long-term stock performance.