The Effects of Executive Compensation and Outside Monitoring on Firms’ Pre-Repurchase Disclosure Behavior and Post-Repurchase Performance

Using a sample of management forecasts, we find that higher CEO and CFO equity compensation and lower institutional ownership concentration, percentage of independent director, and number of analyst following induce managers to release significantly more bad news, downward biased management earnings forecasts, and withhold good news before share repurchases. These manipulating firms experience positive post-repurchase long-term abnormal stock returns, but have no operating performance improvement. In contrast, lower executive equity compensation and higher intensity of outside monitoring constrain the pre-repurchase management opportunism. These non-manipulating firms do not have post-repurchase long-run stock anomaly, but experience superior operating performances. Our findings show that the corporate governance mechanism has a significant impact of on pre-repurchase managers' opportunistic behavior and post-repurchase stock prices and operating performances.