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Trading Profits in Dutch Auction Self‐Tender Offers
Author(s) -
KADAPAKKAM PALANIRAJAN,
SETH SARABJEET
Publication year - 1994
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.1540-6261.1994.tb04431.x
Subject(s) - call for bids , tender offer , business , dutch auction , procurement , common value auction , expiration date , reverse auction , expiration , bid price , economics , monetary economics , commerce , microeconomics , finance , marketing , auction theory , revenue equivalence , medicine , corporate governance , chemistry , food science , respiratory system , shareholder
We document abnormal trading profits in Dutch auction self‐tenders. Tender period profits—buying after announcement and selling just before expiration—are 1.74 percent (Bhagat, Brickley, and Lowenstein (1987) report similar profits for interfirm tenders). Buying just before expiration and tendering yields abnormal profits of 1.36 percent (Lakonishok and Vermaelen (1990) report 9 percent for fixed‐price self‐tenders using a filter rule). Total profits from buying just after announcement and tendering remain positive after adjusting for bid‐ask spreads. Trading profits are higher for smaller firms, and positively correlated with tender period unsystematic risk, suggesting that they arise due to the pricing of event risk.