Repurchasing Shares on a Second Trading Line
AbstractThis paper studies a unique buyback method allowing firms to reacquire their own shares on a separate trading line where only the firm is allowed to buy shares. This temporary trading platform is opened concurrently with the original trading line on the stock exchange. This share repurchase method is called the Second Trading Line and has been extensively used by Swiss companies since 1997. This type of repurchase is unique for two reasons. First, unlike open market programs, the repurchasing company does not trade under the cover of anonymity. Second, all transactions made by the repurchasing firm are publicly available in real time to every market participant. This is a case of instantaneous disclosure which contrasts sharply with other markets characterized by delayed or no disclosure. Using actual repurchase data from all buybacks implemented through second trading lines, we find that managers exhibit timing ability for the majority of programs. We also document that the daily repurchase decision is statistically associated with short-term price changes. However, we reject the opportunistic repurchase hypothesis and find no evidence that managers exploit their information advantage when reacquiring shares. We also find that repurchases on the second trading line have a beneficial impact on the liquidity of repurchasing firms (i.e., higher trading volumes, smaller bid-ask spreads, and thicker total depths). Exchanges and regulators may consider the second trading line an attractive share reacquisition mechanism because of its transparency and positive liquidity effects.
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Bibliographic InfoPaper provided by International Center for Financial Asset Management and Engineering in its series FAME Research Paper Series with number rp162.
Date of creation: Nov 2005
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Share Repurchases; Disclosure Environment; Information Asymmetry; Liquidity;
Other versions of this item:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-24 (All new papers)
- NEP-FIN-2006-01-24 (Finance)
- NEP-FMK-2006-01-24 (Financial Markets)
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- Jacob, Martin, 2010. "Taxation, Dividends, and Share Repurchases: Taking Evidence Global," Working Paper Series, Center for Fiscal Studies 2010:10, Uppsala University, Department of Economics.
- Pick, Tobias & Knirsch, Deborah & Niemann, Rainer, 2008. "Substitutions- oder Komplementenhypothese im Rahmen der Ausschüttungspolitik schweizerischer Kapitalgesellschaften: Eine empirische Studie," arqus Discussion Papers in Quantitative Tax Research 53, arqus - Arbeitskreis Quantitative Steuerlehre.
- Isakov, Dusan & Dumont, Pierre-André, 2009. "Les rachats d'actions en Suisse. Objectifs, conséquences et pratiques," FSES Working Papers 408, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
- 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).
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