 Stock repurchases: How firms choose between a self tender offer and an open-market programJacob Oded Journal of Banking & Finance, 2011, vol. 35, issue 12, 3174-3187 Abstract: In practice, open-market stock repurchase programs outnumber self tender offers by approximately 10–1. This evidence is puzzling given that tender offers are more efficient in disbursing free cash and in signaling undervaluation – the two main motivations suggested in the literature for repurchasing shares. We provide a theoretical model to explore this puzzle. In the model, tender offers disburse free cash quickly but induce information asymmetry and hence require a price premium. Open-market programs disburse free cash slowly, and hence do not require a price premium, but because they are slow, result in partial free cash waste. The model predicts that the likelihood that a tender offer will be chosen over an open-market program increases with the agency costs of free cash and decreases with uncertainty (risk), information asymmetry, ownership concentration, and liquidity. These predictions are generally consistent with the empirical evidence. Keywords: Repurchase; Tender offer; Open-market program; Buyback; Payout policy; Stock repurchase; Free cash (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:35:y:2011:i:12:p:3174-3187 DOI: 10.1016/j.jbankfin.2011.05.006 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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