Share Issues versus Share Repurchases

Abstract

Almost all firms repurchase shares through open market repurchase (OMR) programs. In contrast, issue methods are more diverse: both at-the-market offerings, analogous to OMR programs, and SEOs, analogous to rarely-used tender-offer repurchases, are used by significant fractions of firms. Furthermore, average SEOs are larger than at-the-market offerings. We show that this asymmetry in the diversity of transaction methods in issuances and repurchases and the size-method relation in issuances are natural consequences of the single informational friction of a firm having superior information to investors. Moreover, repurchasing firms are likely maximizing long-term shareholders' payoffs rather than boosting short-term share prices.