This paper documents that firms face upward-sloping supply curves when they repurchase shares in a Dutch auction, and it analyzes the market reaction to these offers. The announcement price increase is highly correlated with the ultimate repurchase premium. Prices decline at expiration only for pro-rated offers. The cumulative return is positive and highly correlated with the repurchase premium, excepting pro-rated offers. Much of this price increase is consistent with movement along an upward-sloping supply curve. Trading volume around the Dutch auction parallels fixed-price repurchasses. Supply elasticity is larger for firms with large trading volume, fims included in the S&P 500 Index, and takeover targets.
Hodrick, Laurie Simon. "Dutch Auction Repurchases: An Analysis of Shareholder Heterogeneity." Journal of Finance 47, no. 1 (1992): 71-105.
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