Greenmail Share Repurchases and Alternative Corporate Performance Measures

Greenmail Share Repurchases and Alternative Corporate Performance Measures This research uses accounting information to supplement abnormal returns evidence in order to gauge the performance of greenmailed firms. Our results support the management entrenchment hypothesis target firm earnings are poor relative to industry in the years surrounding the greenmail event, and earnings do not significantly improve as would be expected under the shareholders' interest hypothesis. This result holds after adjusting for greenmail premia net of tax effects. Evidence on investment spending suggests firms that pay greenmail differ substantially from their industries, but in a negative direction. In contrast, the industryadjusted earnings of nongreenmail repurchasing firms are significantly greater than the earnings of greenmailed firms. Together, these results are consistent with the contention that greenmailed firms are not managed in shareholders' interests they underperform their industry, the poor operating results are not attributable to higher investment outlays associated with a longterm strategic focus, and performance does not improve. This is consistent with observed negative abnormal returns being attributable to both a lost takeover premium and a lost opportunity for improved corporate performance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting and Finance Emerald Publishing

Greenmail Share Repurchases and Alternative Corporate Performance Measures

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1475-7702
DOI
10.1108/eb043414
Publisher site
See Article on Publisher Site

Abstract

This research uses accounting information to supplement abnormal returns evidence in order to gauge the performance of greenmailed firms. Our results support the management entrenchment hypothesis target firm earnings are poor relative to industry in the years surrounding the greenmail event, and earnings do not significantly improve as would be expected under the shareholders' interest hypothesis. This result holds after adjusting for greenmail premia net of tax effects. Evidence on investment spending suggests firms that pay greenmail differ substantially from their industries, but in a negative direction. In contrast, the industryadjusted earnings of nongreenmail repurchasing firms are significantly greater than the earnings of greenmailed firms. Together, these results are consistent with the contention that greenmailed firms are not managed in shareholders' interests they underperform their industry, the poor operating results are not attributable to higher investment outlays associated with a longterm strategic focus, and performance does not improve. This is consistent with observed negative abnormal returns being attributable to both a lost takeover premium and a lost opportunity for improved corporate performance.

Journal

Review of Accounting and FinanceEmerald Publishing

Published: Apr 1, 2004

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