Abstract
AbstractFirms may repurchase shares to send true or false signals to the market. Since the mindset of managers is invisible, we measure it with earnings management. Discretionary accruals are used to proxy for earnings management. We show that earnings management is negatively related to the probability and frequency of share repurchase announcements. We also show that earnings management is negatively related to postannouncement 2‐year operating performance and stock returns. Our findings support the prediction that the magnitude of earnings management can serve as a reliable indicator of managers' mindsets with regard to the valuation of firms.
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