LAUSR

This study examines the change of the demand for accounting conservatism surrounding share repurchases for a sample of US listed firms between 2003 and 2013. We find that the extent of accounting conservatism decreases significantly post share repurchase, consistent with the view that share repurchases reduce excess cash and information asymmetry, and consequently the agency-cost demand for conservative accounting decreases. Further analysis finds this result holds only for financially unconstrained firms and firms with low or no financial distress risk, but there is no significant decrease in accounting conservatism for financially constrained firms or for firms with high financial distress risk. This suggests that share repurchases in these firms might result from other motives such as manager hubris, earnings management, or false signals to mislead investors, and thus cannot reduce the agency-based demand for accounting conservatism. Our results add further evidences to the literature on accounting conservatism and firm financial policies.