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Signaling and Takeover Deterrence with Stock Repurchases: Dutch Auctions versus Fixed Price Tender Offers

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  • Persons, John C

Abstract

This article presents a model of repurchase tender offers in which firms choose between the Dutch auction method and the fixed price method. Dutch auction repurchases are more effective takeover deterrents, while fixed price repurchases are more effective signals of undervaluation. The model yields empirical implications regarding price effects of repurchases, likelihood of takeover, managerial compensation, and cross-sectional differences in the elasticity of the supply curve for shares. Copyright 1994 by American Finance Association.

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  • Persons, John C, 1994. "Signaling and Takeover Deterrence with Stock Repurchases: Dutch Auctions versus Fixed Price Tender Offers," Journal of Finance, American Finance Association, vol. 49(4), pages 1373-1402, September.
    • Handle: RePEc:bla:jfinan:v:49:y:1994:i:4:p:1373-1402
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    Citations

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    Cited by:

    1. Louis, Henock & White, Hal, 2007. "Do managers intentionally use repurchase tender offers to signal private information? Evidence from firm financial reporting behavior," Journal of Financial Economics, Elsevier, vol. 85(1), pages 205-233, July.
    2. Hodrick, Laurie Simon, 1999. "Does stock price elasticity affect corporate financial decisions?," Journal of Financial Economics, Elsevier, vol. 52(2), pages 225-256, May.
    3. Henock Louis & Amy X. Sun & Hal White, 2010. "Insider Trading after Repurchase Tender Offer Announcements: Timing versus Informed Trading," Financial Management, Financial Management Association International, vol. 39(1), pages 301-322, March.
    4. Ilona Babenko & Yuri Tserlukevich & Pengcheng Wan, 2020. "Is Market Timing Good for Shareholders?," Management Science, INFORMS, vol. 66(8), pages 3542-3560, August.
    5. Levy, Hagit & Shalev, Ron, 2017. "Bond repurchase objectives and the repurchase method choice," Journal of Accounting and Economics, Elsevier, vol. 63(2), pages 385-403.
    6. Ralf Schremper, 2003. "Kapitalmarktrelevanz deutscher Aktienrückkaufprogramme," Schmalenbach Journal of Business Research, Springer, vol. 55(6), pages 578-605, September.
    7. Zhang, Hua, 2002. "Share repurchases under the Commercial Law 212-2 in Japan: Market reaction and actual implementation," Pacific-Basin Finance Journal, Elsevier, vol. 10(3), pages 287-305, June.
    8. Jung, Sung-Chang & Lee, Yong-Gyo & Thornton, John Jr., 2005. "An empirical comparison between operations of stabilization funds and stock repurchases in Korea," Pacific-Basin Finance Journal, Elsevier, vol. 13(3), pages 319-341, June.
    9. Persons, John C., 1997. "Heterogeneous shareholders and signaling with share repurchases," Journal of Corporate Finance, Elsevier, vol. 3(3), pages 221-249, June.
    10. Wesson, N. & Smit, E.v.d.M. & Kidd, M. & Hamman, W.D., 2018. "Determinants of the choice between share repurchases and dividend payments," Research in International Business and Finance, Elsevier, vol. 45(C), pages 180-196.
    11. Ronald W. Best & Roger J. Best & Charles W. Hodges, 1998. "The Effect Of Self-Tender Offers On Earnings Expectations," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 21(2), pages 123-138, June.

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