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The Relative Signalling Power of Dutch‐Auction and Fixed‐Price Self‐Tender Offers and Open‐Market Share Repurchases
Author(s) -
COMMENT ROBERT,
JARRELL GREGG A.
Publication year - 1991
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1991.tb04617.x
Subject(s) - dutch auction , tender offer , monetary economics , insider , stock (firearms) , stock dilution , open market operation , business , economics , common stock , stock market , financial economics , stock market bubble , auction theory , microeconomics , common value auction , finance , monetary policy , revenue equivalence , context (archaeology) , law , horse , engineering , biology , shareholder , paleontology , corporate governance , political science , mechanical engineering
We compare three forms of common stock repurchases. Dutch‐auction self‐tender offers and open‐market share repurchase programs are weaker signals of stock undervaluation than fixed‐price self‐tender offers. The price increase from buyback announcements is greater when insider wealth is at risk, greater following negative net‐of‐market stock returns, and unrelated to prior market returns. Buyback announcement returns are also increasing in the fraction of shares sought, which is consistent with both signalling and an upward‐sloping supply curve for stock.