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

Author

Listed:
  • Ahron R. Ofer

    (Northwestern University/Tel Aviv University)

  • Anjan V. Thakor

    (Washington University in St. Louis)

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 sylized 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.

Suggested Citation

  • Ahron R. Ofer & Anjan V. Thakor, 2004. "A Theory of Stock Price Responses to Alternative Corporate Cash Disbursement Methods: Stock Repurchase and Dividends," Finance 0411031, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:0411031
    Note: Type of Document - pdf; pages: 31
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0411/0411031.pdf
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    References listed on IDEAS

    as
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    • G - Financial Economics

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