5. Summary and conclusions
We examine the accounting choice between the treasury and retirement methods to record share repurchases. Although an increasing number of states mandate the retirement method, Delaware and many other states do not. Companies that have the choice between methods should follow GAAP and only maintain treasury shares if management intends to reissue the shares. However, we find that more mature, lower growth firms appear to hold significant stores of treasury shares on a more permanent basis than one would expect from the financial reporting standards which view treasury stock as a temporary reduction in capital. Further, our comparison of the characteristics of firms using each method indicates that a firm's choice of accounting method is not random but is associated with asset growth, cash holdings, price– earnings ratio and industry membership. We also find evidence that firms' choice of method and firm characteristics associated with each method were influenced by regulatory changes in 2004 that increased the transparency of repurchase activities. Finally, we find evidence that a firm's choice of accounting method to report share repurchases is related to the firm's propensity to make future repurchase transactions. A Retire firm's idiosyncratic risk reduces the likelihood of a repurchase transaction more so than a Treasury firm reporting similar risk, and this risk impact grows stronger after the increased disclosure regime. Further, Treasury firms more likely repurchase at lower price earnings multiples, increasing the likelihood that Treasury firms make more economically efficient repurchase transactions over comparable Retire firms
