Abstract
In their analysis of self-tender offers. Howe et al. (1992) reject the free cash flow hypothesis. We expand their analysis in two ways, exploring implications of using long-run measures of Tobin's q as opposed to current q's and incorporating cash flow signalling. We find that acceptance or rejection of the free cash flow hypothesis is sensitive to the measure of q, raising concern over the reliability of results based on different q measures. Thus, the free cash flow hypothesis should not yet be dismissed. We also find strong evidence supporting cash flow signalling.
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