Open Market Versus Tender Offer Share Repurchases: A Conditional Event Study

Abstract

This paper examines firms' choice of the repurchase program and the links between that choice, the determination of repurchase terms, and the announcement period price reaction. Our conditional event study shows that firms choose tender offers when they have greater financial slack and large shareholders who monitor management. Firms prefer open market repurchases in times of market turbulence or weak business conditions. Furthermore, we find that firms' choice of the repurchase program is systematically related to their determination of repurchase terms. The terms, in turn, affect the announcement period price reaction. Finally, our model predicts repurchase terms and the announcement period price reaction had an alternative repurchase program been employed, and results indicate that firms exhibit comparative advantage in their chosen repurchase programs.

JEL Classification: G14, G32, G35, C34, C11