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Firms may repurchase shares to send true or false signals to the market. Since the mindset of managers is invisible, we measure it with earnings management. Discretionary accruals are used to proxy for earnings management. We show that earnings management is negatively related to the probability and frequency of share repurchase announcements. We also show that earnings management is negatively related to postannouncement 2-year operating performance and stock returns. Our findings support the prediction that the magnitude of earnings management can serve as a reliable indicator of managers' mindsets with regard to the valuation of firms.

This paper examines the impact of forecast errors and the mandatory disclosure of repurchase transactions required by 2003 Securities and Exchange Commission (SEC) regulations on share repurchases. We define forecast errors as the difference between analysts' forecasted earnings and actual earnings. We argue that firms with positive forecast errors imply greater information asymmetry, which may induce them to signal through share repurchases. We show that both the repurchase target and analysts' forecast revision are positively related to forecast errors. Furthermore, these associations are more pronounced in the low disclosure period (1989)(1990)(1991)(1992)(1993)(1994)(1995)(1996)(1997)(1998)(1999)(2000)(2001)(2002)(2003) where greater information asymmetry between managers and outside investors is found, while increased transparency in the high disclosure period (2004)(2005)(2006) leads to more significant improvement in longterm performances for firms with positive forecast errors. The results are consistent with our expectations that the information asymmetry implied in forecast errors, along with a shock change from the introduction of the 2003 SEC regulation, affect both corporate and analysts' behaviour.