The Relative Signalling Power of Dutch-Auction and Fixed-Price Self-Tender Offers and Open-Market Share Repurchases




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    • Bradley Policy Research Center, Willian E. Simon Graduate School of Business Administration, University of Rochester, Rochester NY, 14627. We wish to thank Michael Bradley, Larry Dann, Josef Lakonishok, Al Rappaport, Cliff Smith, René Stulz, Tom Swann, Theo Vermaelen, and seminar participants at INSEAD, the University of Virginia, and the University of Rochester. Financial support was provided by the Olin Foundation.


We compare three forms of common stock repurchases. Dutch-auction self-tender offers and open-market share repurchase programs are weaker signals of stock undervaluation than fixed-price self-tender offers. The price increase from buyback announcements is greater when insider wealth is at risk, greater following negative net-of-market stock returns, and unrelated to prior market returns. Buyback announcement returns are also increasing in the fraction of shares sought, which is consistent with both signalling and an upward-sloping supply curve for stock.