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

Authors

  • JOHN C. PERSONS

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    • Ohio State University. I wish to thank B. Betker, S. Buser, T. George, C. Leach, R. Stulz (the editor), V. Warther, R. Young, and two anonymous referees for helpful comments, J. Lakonishok for providing data, and S. Corwin for research assistance. I am grateful for financial support from the Charles A. Dice Center for Research in Financial Economics.


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.

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