Abstract This study finds that, for a sample of 335 open-market repurchase announcements during 1978 to 1992, the market reaction to the announcement is significantly associated with the firm's sales growth and accounting profitability in prior periods. This result holds after controlling for two known correlates of the market response, the announced fraction to be repurchased and prior returns. This result is consistent with the market reinterpreting previously released accounting information when interpreting a subsequent repurchase announcement by the firm. Further, the association between the market response and prior accounting information is more pronounced for firms that are smaller in size or have fewer analysts following them. This suggests that the degree of reinterpretation of prior accounting information at the time of the repurchase announcement increases in the information asymmetry between managers and investors.

[This study finds that, for a sample of 335 open-market repurchase announcements during 1978 to 1992, the market reaction to the announcement is significantly associated with the firm's sales growth and accounting profitability in prior periods. This result holds after controlling for two known correlates of the market response, the announced fraction to be repurchased and prior returns. This result is consistent with the market reinterpreting previously released accounting information when interpreting a subsequent repurchase announcement by the firm. Further, the association between the market response and prior accounting information is more pronounced for firms that are smaller in size or have fewer analysts following them. This suggests that the degree of reinterpretation of prior accounting information at the time of the repurchase announcement increases in the information asymmetry between managers and investors.]