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THE DIFFERENTIAL INFORMATION CONVEYED BY SHARE REPURCHASE TENDER OFFERS AND DIVIDEND INCREASES
Author(s) -
Choi Dosoung,
Chen ShengSyan
Publication year - 1997
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1997.tb00264.x
Subject(s) - dividend , earnings , business , differential (mechanical device) , cash , stock (firearms) , monetary economics , share repurchase , tender offer , finance , economics , corporate governance , shareholder , mechanical engineering , engineering , aerospace engineering
We identify the difference in the private information conveyed by the announcements of a share repurchase tender offer and of a regular dividend increase. We find that, after controlling for timing, industry, size of cash distribution, and other firm‐specific characteristics, a share repurchase tender offer causes a much larger stock price response than a regular dividend increase. The results suggest that the two cash distribution mechanisms convey differential information. Further examination of the differential information indicates that (1) the upward revision in financial analysts' earnings forecasts following a share repurchase is, on average, greater than that following a regular dividend increase, and (2) a repurchase announcement is followed by a permanent decline in the firms' systematic risk while a dividend‐increase announcement is not.