DUTCH AUCTION REPURCHASES - AN ANALYSIS OF SHAREHOLDER HETEROGENEITY

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 c orrelated with the ultimate repurchase premium. Prices decline at expi ration only for pro-rated offers. The cumulative return is positive an d highly correlated with the repurchase premium, excepting pro-rated o ffers. Much of this price increase is consistent with movement along a n upward-sloping supply curve. Trading volume around the Dutch auction parallels fixed-price repurchases. Supply elasticity is larger for fi rms with large trading volume, firms included in the S&P 500 Index, an d takeover targets.