Do managers intentionally use repurchase tender offers to signal private information? Evidence from firm financial reporting behavior

Henock Louis, Hal White

Research output: Contribution to journalArticlepeer-review

97 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)205-233
Number of pages29
JournalJournal of Financial Economics
Volume85
Issue number1
DOIs
StatePublished - Jul 2007

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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