The accounting and market consequences of accelerated share repurchases

摘要

We evaluate the representational faithfulness of the accounting treatment of a recent and well-established type of structured transaction-accelerated share repurchases (ASRs). ASRs are popular because accretive earnings per share benefits are recognized immediately, while any gains or losses on the forward contract used to execute an ASR bypass income, and are reported directly in equity. We document lower value relevance for the liabilities of ASR companies compared with a size- and industry-matched sample. ERC tests also indicate a market discount for the earnings of ASR companies compared with the control sample. Finally, we document significant abnormal returns to a trading strategy based on unrealized gains or losses on ASR transactions. Our results indicate that the current accounting for ASRs does not result in representative reporting of these transactions. As a result, financial statement users might benefit from recognition of ASR elements in financial statements.