An Empirical Examination of the Stated Purposes of Issuer Tender Offers to Purchase Common Stock

37 Pages Posted: 7 Dec 2009

See all articles by Jessica Kay Dunn

Jessica Kay Dunn

Southern Illinois University at Carbondale - Department of Finance

Alex Fayman

University of Central Arkansas

Jamie John McNutt

Southern Illinois University at Carbondale - Department of Finance

Date Written: December 7, 2009

Abstract

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

Dunn, Jessica Kay and Fayman, Alex and McNutt, Jamie John, An Empirical Examination of the Stated Purposes of Issuer Tender Offers to Purchase Common Stock (December 7, 2009). Available at SSRN: https://ssrn.com/abstract=1519956 or http://dx.doi.org/10.2139/ssrn.1519956

Jessica Kay Dunn

Southern Illinois University at Carbondale - Department of Finance ( email )

Mail Code 4626
Carbondale, IL 62901-4626
United States

Alex Fayman

University of Central Arkansas ( email )

Conway, AR 72035-0001
United States
5014505336 (Phone)

Jamie John McNutt (Contact Author)

Southern Illinois University at Carbondale - Department of Finance ( email )

Mail Code 4626
Carbondale, IL 62901-4626
United States

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