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Multi-dimensional signaling with fixed-price repurchase offers

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  • William J. McNally

    (Faculty of Business, University of Victoria, Victoria, BC, Canada)

Abstract

This study presents a signaling model of fixed-price repurchase offers which shows that the proportion repurchased and the premium paid in excess of the stock's full-information value signal both earnings and risk. The model yields four novel implications: high risk firms repurchase smaller proportions at greater premiums, earnings held constant; and high earnings firms make offers for larger proportions at higher prices, but lower premiums, risk held constant. Empirical tests support the implications, even in the presence of alternatives, e.g., free cash flow, optimal leverage, and shareholder heterogeneity. Copyright © 1999 John Wiley & Sons, Ltd.

Suggested Citation

  • William J. McNally, 1999. "Multi-dimensional signaling with fixed-price repurchase offers," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 20(3), pages 131-150.
    • Handle: RePEc:wly:mgtdec:v:20:y:1999:i:3:p:131-150
    DOI: 10.1002/(SICI)1099-1468(199905)20:3<131::AID-MDE925>3.0.CO;2-A
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    References listed on IDEAS

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    1. Kenneth Lehn & Annette Poulsen, 1989. "Free Cash Flow and Stockholder Gains in Going Private Transactions," Journal of Finance, American Finance Association, vol. 44(3), pages 771-787, July.
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    7. Comment, Robert & Jarrell, Gregg A, 1991. "The Relative Signalling Power of Dutch-Auction and Fixed-Price Self-Tender Offers and Open-Market Share Repurchases," Journal of Finance, American Finance Association, vol. 46(4), pages 1243-1271, September.
    8. Bagwell, Laurie Simon, 1992. "Dutch Auction Repurchases: An Analysis of Shareholder Heterogeneity," Journal of Finance, American Finance Association, vol. 47(1), pages 71-105, March.
    9. David R. Peterson & Pamela P. Peterson, 1993. "Dutch Auction Versus Fixed‐Price Self‐Tender Offers: Do Firms Overpay In Fixed‐Price Offers?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 16(1), pages 39-48, March.
    10. Vermaelen, Theo, 1984. "Repurchase Tender Offers, Signaling, and Managerial Incentives," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 19(2), pages 163-181, June.
    11. Lehn, Kenneth & Poulsen, Annette, 1989. " Free Cash Flow and Stockholder Gains in Going Private Transactions," Journal of Finance, American Finance Association, vol. 44(3), pages 771-787, July.
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    Cited by:

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    2. Weinem, Michael & Heil, Oliver, 2010. "Pre-entry advertising, entry deterrence and multi-informational signaling," MPRA Paper 35001, University Library of Munich, Germany.

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