Do Managers Intentionally Use Repurchase Tender Offers to Signal Private Information? Evidence from Firm Financial Reporting Behavior

Posted: 7 Nov 2006

See all articles by Henock Louis

Henock Louis

Pennsylvania State University - Smeal College of Business

Hal D. White

Penn State University

Abstract

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

Louis, Henock and White, Hal D., Do Managers Intentionally Use Repurchase Tender Offers to Signal Private Information? Evidence from Firm Financial Reporting Behavior. Journal of Financial Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=942685

Henock Louis (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802-3306
United States
814-865-4160 (Phone)
814-863-8393 (Fax)

Hal D. White

Penn State University ( email )

210 Business Building
Smeal College of Business
University Park, PA 16802-3306
United States
814-863-7055 (Phone)

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