An Empirical Examination of the Stated Purposes of Issuer Tender Offers to Purchase Common Stock
37 Pages Posted: 7 Dec 2009
Date Written: December 7, 2009
This paper documents the purposes of issuer tender offers to repurchase stock, as stated in SEC disclosures, over the period 1994 through 2006. We explore whether stated purposes affect announcement period returns and find evidence that returns are significantly lower if repurchases replace dividends, distribute cash from unspecified sources, or occur subsequent to third-party tender offers. We find announcement period returns are significantly higher when repurchases are viewed by management as the best investment opportunity available or when they occur subsequent to previous repurchase programs. Finally, we provide additional evidence in support of both signaling theory and Jensen’s agency costs of free cash flows theory.
Keywords: Tender offer, repurchase
JEL Classification: G14, G32, G34
Suggested Citation: Suggested Citation