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Open-Market Share Repurchase Programs and Bid-Ask Spreads on the NYSE: Implications for Corporate Payout Policy

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  • Miller, James M.
  • McConnell, John J.

Abstract

This study analyzes bid-ask spreads surrounding announcements of open-market share repurchase programs for a sample of 248 announcements of repurchase programs by NYSE firms over the period January 1984 through June 1988. The sample includes 158 announcements of new programs and 90 announcements regarding continuations of already existing programs. Contrary to the theory that spreads increase surrounding the announcement of open-market share repurchase programs, with both univariate and multivariate tests that control for changes in volume, changes in stock price volatility, and changes in the level of stock price, we find no evidence of an increase in spreads surrounding announcements of open-market share repurchase programs.

Suggested Citation

  • Miller, James M. & McConnell, John J., 1995. "Open-Market Share Repurchase Programs and Bid-Ask Spreads on the NYSE: Implications for Corporate Payout Policy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(3), pages 365-382, September.
    • Handle: RePEc:cup:jfinqa:v:30:y:1995:i:03:p:365-382_00
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    Citations

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    Cited by:

    1. Nandkumar Nayar & Ajai K. Singh & Allan A. Zebedee, 2008. "Share Repurchase Offers and Liquidity: An Examination of Temporary and Permanent Effects," Financial Management, Financial Management Association International, vol. 37(2), pages 251-270, June.
    2. De Cesari, Amedeo & Espenlaub, Susanne & Khurshed, Arif, 2011. "Stock repurchases and treasury share sales: Do they stabilize price and enhance liquidity?," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1558-1579.
    3. Ben-Rephael, Azi & Oded, Jacob & Wohl, Avi, 2011. "Do firms buy their stock at bargain prices? Evidence from actual stock repurchase disclosure," CFS Working Paper Series 2011/17, Center for Financial Studies (CFS).
    4. Oded, Jacob, 2009. "Optimal execution of open-market stock repurchase programs," Journal of Financial Markets, Elsevier, vol. 12(4), pages 832-869, November.
    5. Ginglinger, Edith & Hamon, Jacques, 2007. "Actual share repurchases, timing and liquidity," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 915-938, March.
    6. Pham, Thu Phuong & Singh, Harminder & Vu, Van Hoang, 2023. "The impact of bank loan announcements on stock liquidity," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 848-864.
    7. Kothare, Meeta, 1997. "The effects of equity issues on ownership structure and stock liquidity: A comparison of rights and public offerings," Journal of Financial Economics, Elsevier, vol. 43(1), pages 131-148, January.
    8. Gayle R. Erwin & James M. Miller, 1998. "The Intra-Industry Effects Of Open Market Share Repurchases: Contagion Or Competitive?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 21(4), pages 389-406, December.
    9. Ahn, Hee-Joon & Cao, Charles & Choe, Hyuk, 2001. "Share repurchase tender offers and bid-ask spreads," Journal of Banking & Finance, Elsevier, vol. 25(3), pages 445-478, March.
    10. Dennis Y. Chung & Dušan Isakov & Christophe Pérignon, 2005. "Repurchasing Shares on a Second Trading Line," FSES Working Papers 391, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    11. Malhotra, Madhuri Malhotra & M., Thenmozhi & Gopalaswamy, Arun Kumar, 2012. "Liquidity changes around bonus and rights issue announcements: Evidence from manufacturing and service sectors in India," MPRA Paper 41216, University Library of Munich, Germany.
    12. repec:dau:papers:123456789/1748 is not listed on IDEAS
    13. Craig W. Holden & Stacey Jacobsen & Avanidhar Subrahmanyam, 2014. "The Empirical Analysis of Liquidity," Foundations and Trends(R) in Finance, now publishers, vol. 8(4), pages 263-365, December.
    14. Manoj Kulchania, 2013. "Market Micrsotructure Changes Around Accelerated Share Repurchase Announcements," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 36(1), pages 91-114, January.
    15. Porter, David C. & Thatcher, John G., 1998. "Fragmentation, competition, and limit orders: New evidence from interday spreads," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(1), pages 111-128.
    16. Brockman, Paul & Khurana, Inder K. & Martin, Xiumin, 2008. "Voluntary disclosures around share repurchases," Journal of Financial Economics, Elsevier, vol. 89(1), pages 175-191, July.
    17. Baker, H. Kent & Powell, Gary E. & Veit, E. Theodore, 2003. "Why companies use open-market repurchases: A managerial perspective," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(3), pages 483-504.
    18. Henchiri, jamel E., 2004. "Les rachats d actions régulent-ils le marché? [Is share repurchase regulate stock market ?]," MPRA Paper 82906, University Library of Munich, Germany.
    19. Pierre Collin-Dufresne & Vyacheslav Fos, 2012. "Do prices reveal the presence of informed trading?," NBER Working Papers 18452, National Bureau of Economic Research, Inc.
    20. Brockman, Paul & Howe, John S. & Mortal, Sandra, 2008. "Stock market liquidity and the decision to repurchase," Journal of Corporate Finance, Elsevier, vol. 14(4), pages 446-459, September.
    21. Jaemin Kim, 2005. "Cross-sectional differences in the liquidity effects of open market share repurchases," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 29(1), pages 1-31, March.
    22. Cheng, Louis & Firth, Michael & Leung, T.Y. & Rui, Oliver, 2006. "The effects of insider trading on liquidity," Pacific-Basin Finance Journal, Elsevier, vol. 14(5), pages 467-483, November.

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