Do Managers Intentionally Use Repurchase Tender Offers to Signal Private Information? Evidence from Firm Financial Reporting Behavior
Posted: 7 Nov 2006
Signaling is the most commonly cited explanation for stock repurchases in the academic literature. Yet, there is little evidence on whether managers intentionally use repurchases as signaling devices. Using a firm's financial reporting behavior to infer managerial intent, we find evidence suggesting that managers intentionally use fixed-price repurchase tender offers to signal undervaluation. In contrast, we find no evidence that managers use Dutch-auction tender offers to signal undervaluation. Instead, firms engaging in Dutch-auction repurchases act as if they are trying to deflate their earnings prior to the repurchases to further reduce the repurchasing price.
Keywords: Repurchase tender offer, Signaling, Managerial opportunism, Financial reporting
JEL Classification: G35, M41, M43, G14, G34
Suggested Citation: Suggested Citation