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

Aharon R Ofer and Anjan Thakor ()

Journal of Finance, 1987, vol. 42, issue 2, 365-94

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.

Date: 1987
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