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The leading explanation for the positive price response surrounding tender offer share repurchase and specially designated dividend (SDD) announcements is the information signaling hypothesis. This paper reexamines these announcements to determine if Jensen's free cash-flow theory also has explanatory power. Lang and Litzenberger's (1989) findings suggest an important role for the free cash-flow theory in explaining the market's reaction to dividend changes. In contrast, we find the market's reaction to share repurchases and SDDs is approximately the same for both high-Q and low-Q firms. We thus have an empirical puzzle: If Jensen's free cash-flow theory applies to dividend changes, it is difficult to see why it does not also apply to the analogous events examined here. CURRENTLY, THE LEADING EXPLANATION for the positive announcement effects surrounding stock repurchase announcements is the information-signaling hypothesis. Major studies, by Dann (1981), Masulis (1980), Rosenfeld (1982), and Vermaelen (1981, 1984), find consistent evidence of positive market returns on announcement dates of stock repurchase tender offers. Because alternative explanations (i.e., tax savings, leverage, and expropriation hypotheses) were found to be only marginally important, the repurchase event is commonly viewed as a signal of favorable earnings prospects.Similarly, several studies document announcement effects accompanying large dividend changes.' Based on a substantial body of evidence, the best explanation for the market's reaction to dividend announcements is also the information-signaling hypothesis, wherein the firm conveys favorable infor-*Howe and Kao are from DePaul University and He is from the University of Houston. The authors are grateful to David Brown, Anand Desai, Adam Gehr, Larry Lang, Haim Levy, Aharon Ofer, Sarabjeet Seth, Ren6 Stulz (the editor), Steve Vogt, and an anonymous referee for comments that led to significant improvements in the paper.1The evidence on the dividend announcement effect is substantial, and strongly supports the information-signaling hypothesis. Asquith and Mullins (1983) and Richardson, Sefcik, and Thompson (1986), for example, study the market's reaction to initial (first-time) dividend announcements. They use initial dividends to reduce the difficulties in specifying dividend expectations. These studies find statistically significant two-day excess returns on the initial dividend announcement of 3.7% to 4.6%. mation on its prospects to the market via dividend increases. Conversely, announcements of equity issues appear to signal unfavorable information about the economic opportunities facing issuing firms.2 The market's reaction to both primary and secondary distributions of shares is negative.These studies support the notion that firms attempt to communicate their prospects to the market via corporate transactions involving cash inflows (equity issues) or cash outflows (dividends and repurchases). The signaling theory thus argues that management has private information which is super...

This study examines the selectivity and market-timing ability of international mutual fund managers. Ninety-seven international mutual funds with a minimum of five-year return history selected from the Morningstar OnDisc database are analyzed. Our findings suggest that managers of international mutual funds possess good selectivity and overall performance. We also find weak evidence of poor market-timing ability. Consistent with prior findings from domestic mutual funds, there is a negative correlation between the international fund managers' selection ability and market-timing ability. Finally, managers for European funds show poorer performance than those managing the other three international fund groups.

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