Does stock price elasticity affect corporate financial decisions?

This paper considers whether stock price elasticity affects corporate finan cial decisions. Basic economic principles and the existing theoretical lite rature predict that firms choosing the Dutch auction instead of the fixed p rice tender offer should be those firms expecting to face greater stock pri ce elasticity. Econometric analysis suggests that firms choosing the Dutch auction instead of the fixed price tender offer between 1984 and 1989 are i ndeed those firms expecting to face greater stock elasticity, even though t he average realized elasticities of the firms conducting the various tender offers fail to be significantly different. The expected elasticity remains an important determinant of the tender offer choice even when allowing for firm characteristics associated with the choice of repurchase method. Firm s facing greater elasticity are also characterized. The findings suggest th at expected stock price elasticity may be an important determinant of corpo rate the financial decisions that affect the supply of, or demand for, stoc k. (C) 1999 Elsevier Science S.A. All rights reserved.