Share repurchases mechanisms: a comparative analysis of efficacy, shareholder wealth, and corporate control effects

Noe, Thomas, Gay, Gerald and Kale, Jayant R (1991) Share repurchases mechanisms: a comparative analysis of efficacy, shareholder wealth, and corporate control effects. Financial Management, 20 (1). pp. 44-59.

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Abstract

This paper compares the dutch auction and transferable put rights (TPRs) share repurchase mechanisms to the traditional fixed-price tender offer in terms of efficiency, wealth transfers, and corporate control. Using Monte Carlo simulations, it is shown that both alternative mechanisms reduce the deadweight losses from inefficient tendering by ensuring that shareholders with the lowest reservation prices are bought out first. The TPR mechanism is further distinguished because it provides greater wealth gains to nontendering and smaller gains to exiting shareholders. The dutch auction mechanism has an efficiency advantage over the TPR because it can be designed to eliminate the possibility of undersubscription and, furthermore, is also a more effective takeover deterrent.

Item Type: Article
Keywords: Stock repurchasing; Capital market; Credit management; Cash flow; Stockholders; Comparative analysis
Subject(s): Finance
Centre: Faculty of Finance
Date Deposited: 26 Feb 2012 11:41
Last Modified: 23 Oct 2015 14:06
URI: http://eureka.sbs.ox.ac.uk/id/eprint/1155

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