Stock repurchases and treasury share sales: Do they stabilize price and enhance liquidity?
AbstractCan companies reduce the volatility and increase the liquidity of their stocks by trading them? In the context of the Italian stock market, where companies have far more leeway to sell as well as buy their own stocks than in the U.S., the answer is yes. We examine the effects of trading (open-market share repurchases and treasury shares sales) on liquidity (bid–ask spread) and volatility (return variance). Further, we examine the impact of shareholder approvals of repurchase programs on liquidity and volatility. We find clear evidence that trading increases liquidity and reduces volatility. These results are consistent with our analysis of the motives Italian companies give for making share repurchases.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Corporate Finance.
Volume (Year): 17 (2011)
Issue (Month): 5 ()
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Web page: http://www.elsevier.com/locate/jcorpfin
Repurchase; Liquidity; Price stabilization; Bid–ask spread; Variance;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
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