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

AHARON R. OFER*, ANJAN V. THAKOR

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

164 Scopus citations

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. 1987 The American Finance Association

Original languageEnglish (US)
Pages (from-to)365-394
Number of pages30
JournalThe Journal of Finance
Volume42
Issue number2
DOIs
StatePublished - Jan 1 1987

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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