Multidimensional Signalling with Fixed-Price Repurchase Offers

53 Pages Posted: 21 Sep 1999

See all articles by William J. McNally

William J. McNally

Wilfrid Laurier University - School of Business & Economics

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Abstract

This study presents a signalling model of fixed-price repurchase offers, which shows that the proportion repurchased and the premium paid in excess of the stock's full-information value signal both earnings and risk. The model yields four novel implications: high risk firms repurchase smaller proportions at greater premiums, earnings held constant; and high earnings firms make offers for larger proportions at higher prices, but lower premiums, risk held constant. Empirical tests support the implications, even in the presence of alternatives, e.g., free cash flow, optimal leverage, and shareholder heterogeneity.

JEL Classification: G35, C70

Suggested Citation

McNally, William J., Multidimensional Signalling with Fixed-Price Repurchase Offers. Available at SSRN: https://ssrn.com/abstract=181970 or http://dx.doi.org/10.2139/ssrn.181970

William J. McNally (Contact Author)

Wilfrid Laurier University - School of Business & Economics ( email )

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