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A Theory of Stock Price Responses to Alternative Corporate Cash Disbursement Methods: Stock Repurchases and Dividends

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  • Ofer, Aharon R
  • Thakor, Anjan V

Abstract

This paper develops a model in which managers can signal their firms' true values by using either a dividend or a stock repurchase or both. The authors explain a number of stylized facts about these cash disbursement mechanisms, particularly those concerning the relative magnitudes of stock price responses to dividends and repurchases. Most importantly, they explain why a stock repurchase elicits a significantly higher price response, on average, than a dividend announcement. Copyright 1987 by American Finance Association.

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  • Ofer, Aharon R & Thakor, Anjan V, 1987. "A Theory of Stock Price Responses to Alternative Corporate Cash Disbursement Methods: Stock Repurchases and Dividends," Journal of Finance, American Finance Association, vol. 42(2), pages 365-394, June.
    • Handle: RePEc:bla:jfinan:v:42:y:1987:i:2:p:365-94
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    References listed on IDEAS

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    1. Dann, Larry Y., 1981. "Common stock repurchases : An analysis of returns to bondholders and stockholders," Journal of Financial Economics, Elsevier, vol. 9(2), pages 113-138, June.
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