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Title:The role of earnings announcements on preceding repurchase tender offers
Author(s):Lee, Tae Hee
Doctoral Committee Chair(s):Dietrich, J. Richard
Department / Program:Accountancy
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):Business Administration, Accounting
Abstract:The purpose of this study is to examine how subsequent earnings information is used by investors in resolving residual uncertainty about preceding repurchase tender offer announcements.
Two specific research questions are addressed: (1) do investors react positively to subsequent quarterly earnings announcements following a repurchase tender offer announcement? and (2) whether and how financial analysts use the information conveyed in a repurchase tender offer announcement in revising their estimates of earnings forecasts?
The empirical results show that firms experience positive abnormal returns during the eight quarterly earnings announcements following a repurchase tender offer announcement. The results appear to be robust even after testing for potential concerns. It is also found that analysts revise their forecasts of earnings per share upward but reduce their forecasts of total earnings around the time of repurchase tender offer announcements, and that they do not appear to revise their forecasts of total earnings downward as much as the decline in the number of shares. This is consistent with the argument that financial analysts are using the information contained in the repurchase tender offer announcements when they revise their estimates of earnings. However, financial analysts do not appear to make sufficient revisions after the repurchase announcements and tend to delay revising their forecasts until later periods.
Taken together, the foregoing results provide consistent evidence that investors underreact to repurchase tender offer announcements and that earnings play an important role in correcting this investor underreaction.
Issue Date:1994
Rights Information:Copyright 1994 Lee, Tae Hee
Date Available in IDEALS:2011-05-07
Identifier in Online Catalog:AAI9512453
OCLC Identifier:(UMI)AAI9512453

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