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Stock repurchases and treasury share sales: Do they stabilize price and enhance liquidity?

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Listed author(s):
  • De Cesari, Amedeo
  • Espenlaub, Susanne
  • Khurshed, Arif
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    Abstract

    Can 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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    File URL: http://www.sciencedirect.com/science/article/pii/S0929119911000939
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    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 17 (2011)
    Issue (Month): 5 ()
    Pages: 1558-1579

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    Handle: RePEc:eee:corfin:v:17:y:2011:i:5:p:1558-1579
    DOI: 10.1016/j.jcorpfin.2011.08.002
    Contact details of provider: Web page: http://www.elsevier.com/locate/jcorpfin

    Keywords: 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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    Cited by:

    1. Đorđe Đukić & Mališa Đukić, 2015. "Interdependencies of Markets in Southeastern Europe and Buyback of Shares on Shallow Capital Markets: The Application of Cointegration and Causality Tests," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(4), pages 469-491, September.
    2. Agudelo, Diego A. & Giraldo, Santiago & Villarraga, Edwin, 2015. "Does PIN measure information? Informed trading effects on returns and liquidity in six emerging markets," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 149-161.
    3. Geiler, Philipp & Renneboog, Luc, 2015. "Taxes, earnings payout, and payout channel choice," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 37(C), pages 178-203.
    4. Andriosopoulos, Dimitris & Lasfer, Meziane, 2015. "The market valuation of share repurchases in Europe," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 327-339.

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