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Do Share Buybacks Provide Price Support? Evidence From Mandatory Non‐Trading Periods

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  • Aneel Keswani
  • Jing Yang
  • Steven Young

Abstract

Financial regulators, analysts and journalists have expressed concern that open market share repurchases may help support share prices. We test this conjecture by examining repurchasing firms' share price patterns on entering mandatory non‐trading periods imposed by the London Stock Exchange. If buybacks provide price support, we would expect to observe price declines when trading bans force firms to suspend their buyback program. Consistent with claims that open market buybacks provide price support, we document average price declines when repurchasing firms enter mandatory non‐trading periods. We also find that the magnitude of the price decline varies cross‐sectionally with proxies for the price support impact of repurchases in the predicted manner. However, economic and statistical significance levels are moderate and largely confined to non‐trading periods preceding interim results announcements, casting doubt on whether trading profits could be earned by exploiting this information.

Suggested Citation

  • Aneel Keswani & Jing Yang & Steven Young, 2007. "Do Share Buybacks Provide Price Support? Evidence From Mandatory Non‐Trading Periods," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(5‐6), pages 840-860, June.
    • Handle: RePEc:bla:jbfnac:v:34:y:2007:i:5-6:p:840-860
    DOI: 10.1111/j.1468-5957.2007.02009.x
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    2. Dittmar, Amy & Field, Laura Casares, 2015. "Can managers time the market? Evidence using repurchase price data," Journal of Financial Economics, Elsevier, vol. 115(2), pages 261-282.
    3. Firth, Michael & Leung, T.Y. & Rui, Oliver M., 2010. "Double signals or single signal? An investigation of insider trading around share repurchases," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(4), pages 376-388, October.
    4. Wang, Huabing Barbara & Nguyen, Cuong & Rafi, Nurul A., 2021. "The effectiveness of price-stabilizing share buybacks: Evidence from listed firms in Vietnam," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    5. De Ridder, Adri, 2015. "Additional evidence on the frequency of share repurchases and managerial timing," The Quarterly Review of Economics and Finance, Elsevier, vol. 56(C), pages 154-164.

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