Taxes, Tenders and the Design of Australian Off‐Market Share Repurchases

27 Pages Posted: 6 Oct 2012

See all articles by Christine A. Brown

Christine A. Brown

Department of Banking and Finance; Financial Research Network (FIRN)

Kevin Thomas Davis

University of Melbourne - Department of Finance; Australian Centre for Financial Studies

Date Written: October 2012


In designing off‐market (self‐tender offer) share repurchases, Australian companies must consider the resulting potential tax benefits for different investor groups with consequent effects upon the supply of stock tendered by holders and the ultimate tender outcome. We develop and estimate a model of the stock supply curve that demonstrates less than perfect elasticity and incomplete tax arbitrage arising from ‘participation risk’ for potential arbitrageurs. We are able to estimate the extent of disequilibrium in prices involved in fixed‐price repurchases and show that it is substantial. We show that Australian Tax Office restrictions on the tender price range for Dutch auctions have meant that non‐participating shareholders have foregone some potential benefits through the transfer of tax benefits to (primarily institutional, low tax rate) successful tender participants. The results provide support for legislative changes proposed in 2009 (but not implemented as of mid 2011), which removed constraints on the allowable range of repurchase prices.

Keywords: Repurchases, Taxation, Tenders, Shareholder heterogeneity

JEL Classification: G32, G35, H20

Suggested Citation

Brown, Christine A. and Davis, Kevin Thomas, Taxes, Tenders and the Design of Australian Off‐Market Share Repurchases (October 2012). Accounting & Finance, Vol. 52, pp. 109-135, 2012, Available at SSRN: or

Christine A. Brown (Contact Author)

Department of Banking and Finance ( email )

Building 11E
Clayton, Victoria 3800
+61 3 99031793 (Phone)
+61 3 99055475 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane


Kevin Thomas Davis

University of Melbourne - Department of Finance ( email )

Faculty of Business and Economics
Parkville, Victoria 3010 3010
+613 8344 5098 (Phone)
+613 8344 6914 (Fax)

Australian Centre for Financial Studies ( email )

Level 46, 525 Collins St
Melbourne, Victoria 3079

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