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

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  • De Cesari, Amedeo
  • Espenlaub, Susanne
  • Khurshed, Arif

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.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:corfin:v:17:y:2011:i:5:p:1558-1579
    DOI: 10.1016/j.jcorpfin.2011.08.002
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    Cited by:

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    3. Mustafa Erdem Sakinç, 2017. "Share Repurchases in Europe A Value Extraction Analysis," CEPN Working Papers hal-03987909, HAL.
    4. Mustafa Erdem Sakinç, 2017. "Share Repurchases in Europe A Value Extraction Analysis," Working Papers hal-03987909, HAL.
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    7. 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.
    8. Diego A. Agudelo & Ignacio Arango, 2017. "How does information disclosure affect liquidity? Evidence from an Emerging Market," Documentos de Trabajo CIEF 16944, Universidad EAFIT.
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    More about this item

    Keywords

    Repurchase; Liquidity; Price stabilization; Bid–ask spread; Variance;
    All these keywords.

    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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