Repurchase Tender Offers and Earnings Information

Dann, Larry; Masulis, Ronald W.; Mayers, David

Repurchase Tender Offers and Earnings Information

Journal of Accounting and Economics, Vol. 14, pp. 217-251, 1991

50 Pages Posted: 11 Aug 2006

See all articles by Larry Dann

Larry Dann

University of Oregon - Department of Finance

University of New South Wales, Sydney; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

David Mayers

University of California, Riverside (UCR) - A. Gary Anderson Graduate School of Management

Abstract

Announcements of stock repurchase tender offers are examined as a source of information to the market on the firm's future earnings prospects and market risk level. We find positive average earnings surprises and equity systematic risk reductions following tender offers but not, in most instances, preceding them. We find positive stock price reactions to tender offer announcements to be positively correlated with earnings surprises over the concurrent and subsequent two years, and negatively correlated with changes in equity and firm market risk. Finally, stock price reactions to quarterly earnings announcements are more strongly correlated with time-series based earnings surprises in the year prior to the tender offer than during the subsequent year, consistent with tender offer announcements conveying earnings information to the market.

Keywords: Tender offer, stock repurchase, earnings announcement, earnings surprise, systematic risk, beta

JEL Classification: G14, G32, G35, M41

Suggested Citation: Suggested Citation

Dann, Larry Y. and Masulis, Ronald W. and Mayers, David, Repurchase Tender Offers and Earnings Information. Journal of Accounting and Economics, Vol. 14, pp. 217-251, 1991. Available at SSRN: https://ssrn.com/abstract=923611