THE EFFECT OF SELF-TENDER OFFERS ON EARNINGS EXPECTATIONS

Ronald W. Best, Roger J. Best and Charles W. Hodges

Journal of Financial Research, 1998, vol. 21, issue 2, 123-138

Abstract: We examine financial analysts' earnings revisions after self-tender offers. Consistent with the assertions of earlier studies that self-tender offers signal future performance, financial analysts significantly increase their forecasts of earnings for firms that announce self-tender offers. However, the revisions differ based on the method chosen to repurchase shares. For Dutch auction offers, analysts significantly revise their estimates of short-term earnings only. For fixed-price tender offers, analysts increase both short-term and long-term earnings estimates. Also, long-term earnings revisions are significantly related to announcement-period abnormal returns for fixed-price tender offers, which suggests that fixed-price self-tender offers convey more positive information about future earnings than do Dutch auction offers.

Date: 1998
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