Earnings management,buybacks, exercisable options: an empricial study

Abstract

We examine the relationship between the corporative earnings management and exercisable option holdings. Our results, using more than 200 buybacks over the period 2001 and 2006, result verified the initial assumption. We find that buyback firms with both exercisable options that are in-the-money prior to the buyback announcement as well as options that are exercised in the buyback period have higher discretionary current accruals than buyback firms with no exercisable options, unexercised options or with out-of-the-money options. In sum, the results are consistent with the hypothesis.