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

AHARON R. OFER; ANJAN V. THAKOR

doi:10.1111/j.1540-6261.1987.tb02572.x

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

Finance

Research output: Contribution to journal › Article › peer-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 language	English (US)
Pages (from-to)	365-394
Number of pages	30
Journal	The Journal of Finance
Volume	42
Issue number	2
DOIs	https://doi.org/10.1111/j.1540-6261.1987.tb02572.x
State	Published - Jan 1 1987

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics

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

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