Repurchase Tender Offers and Earnings Information
University of Oregon - Department of Finance
Ronald W. Masulis
University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN)
University of California, Riverside - A. Gary Anderson Graduate School of Management
Journal of Accounting and Economics, Vol. 14, pp. 217-251, 1991
Announcements of stock repurchase tender offers are examined as a source of information to the market on the firm's future earnings prospects and market risk level. We find positive average earnings surprises and equity systematic risk reductions following tender offers but not, in most instances, preceding them. We find positive stock price reactions to tender offer announcements to be positively correlated with earnings surprises over the concurrent and subsequent two years, and negatively correlated with changes in equity and firm market risk. Finally, stock price reactions to quarterly earnings announcements are more strongly correlated with time-series based earnings surprises in the year prior to the tender offer than during the subsequent year, consistent with tender offer announcements conveying earnings information to the market.
Number of Pages in PDF File: 50
Keywords: Tender offer, stock repurchase, earnings announcement, earnings surprise, systematic risk, beta
JEL Classification: G14, G32, G35, M41Accepted Paper Series
Date posted: August 11, 2006
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