Font Size: 

We examine the relation between the market reaction to management earnings forecasts and subsequent share repurchase announcements. Our results show that repurchase firms experience larger market reaction to bad news of management earnings forecasts than non-repurchase firm before repurchase announcements. By contrast, there is little difference in the market reaction to good news between repurchase firms and non-repurchase firms. Additionally, little difference exists in the information content of management forecasts between repurchase firms and non-repurchase firms. In summary, our results imply that Japanese companies announce a share repurchase in response to the market overreactions to bad news in management earnings forecasts.

Share repurchase; management earnings forecasts; undervaluation