Equity Undervaluation and Decisions Related to Repurchase Tender Offers : An Empirical Investigation

  title={Equity Undervaluation and Decisions Related to Repurchase Tender Offers : An Empirical Investigation},
  author={R A D'mello and Pervin K. Shroff},
This paper tests whether managers repurchase stock when their assessment of the firm's economic value exceeds the market value. Using the forecasts managers would have if they had perfect foresight, we estimate economic value using an earnings-based valuation model. The major findings are: (1) 74 percent of the firms that repurchase shares via fixed-price tender offers are undervalued relative to their pre-announcement economic value; this percentage is significantly lower for a control sample… CONTINUE READING
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