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Operating Determinants of Premiums on Self-Tender Offers

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  • Anne M. Anderson
  • Edward A. Dyl

Abstract

We investigate why firms pay a premium when making a tender offer to repurchase shares, and if the size of the premium is related to the elasticity of the supply curve for the firm’s stock. We find that premiums on self-tender offers are related to characteristics of tendering firms, and to variables that are proxies both for the capital gains and for the information content of the announcement. Our results indicate that stock price inelasticity, caused by taxes, is an important determinant of offer premiums for fixed-price self-tender offers. We also find that the information conveyed by the offer, measured by the post-expiration appreciation of the firm’s stock, is contained in the tender offer premium, and that offer premiums are inversely related to firm size and to preoffer stock performance. In addition, we present evidence that share repurchase tender offers may frequently be oversubscribed by design.

Suggested Citation

  • Anne M. Anderson & Edward A. Dyl, 2004. "Operating Determinants of Premiums on Self-Tender Offers," Financial Management, Financial Management Association, vol. 33(1), Spring.
    • Handle: RePEc:fma:fmanag:andersondyl04
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    Cited by:

    1. Nandkumar Nayar & Ajai K. Singh & Allan A. Zebedee, 2008. "Share Repurchase Offers and Liquidity: An Examination of Temporary and Permanent Effects," Financial Management, Financial Management Association International, vol. 37(2), pages 251-270, June.
    2. Hue Hwa Au Yong & Christine Brown & Chloe Choy Yeing Ho, 2014. "Off-Market Buybacks in Australia: Evidence of Abnormal Trading around Key Dates," International Review of Finance, International Review of Finance Ltd., vol. 14(4), pages 551-585, December.
    3. Christine Brown & Daniel Norman, 2010. "Management choice of buyback method: Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 50(4), pages 767-782, December.

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