Share Issues versus Share Repurchases

Abstract

Almost all firms repurchase shares gradually through open market repurchase (OMR) programs as opposed to using the quicker alternative of tender offers. In contrast, issue methods are more diverse: both at-the-market offerings, analogous to OMR programs, and SEOs, analogous to the rarely-used tender-offer repurchases are used by significant fractions of firms. Moreover, SEOs are often used to issue larger amounts of equity than the total proceeds of a typical at-the-market offering program. We show that this asymmetry in the diversity of transaction methods in issuances and repurchases and the size-method relation in issuances are natural consequences of the single informational friction of a firm having superior information to investors.