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Share repurchases and institutional supply

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  • Jared DeLisle, R.
  • Morscheck, J.D.
  • Nofsinger, John R.

Abstract

Consistent with the predictions of Brennan and Thakor's (1990) model of shareholder preferences, we find that, on average, institutional shareholders are net sellers during share repurchases. After controlling for liquidity provision and characteristics investing, we find that a one standard deviation increase in share repurchases during a given quarter is associated with a 0.11 standard deviation decrease in institutional investor demand. We estimate that 37% of the inverse relation is attributed to institutional investors executing liquidity provision strategies, 8% is explained by institutions reacting to the investment characteristics signaled by a repurchasing firm. We attribute the majority, 55%, to the information asymmetry between institutions and individual investors. This work is one of the first to exploit the SEC mandate requiring firms to report the actual number of shares they repurchase each quarter, beginning in 2004. Using actual number of shares repurchased, we find evidence of institutional investors increasing their selling as firms increase their repurchasing. This finding is robust to models of endogeneity and autocorrelation in share repurchases and institutional investor trading.

Suggested Citation

  • Jared DeLisle, R. & Morscheck, J.D. & Nofsinger, John R., 2014. "Share repurchases and institutional supply," Journal of Corporate Finance, Elsevier, vol. 27(C), pages 216-230.
    • Handle: RePEc:eee:corfin:v:27:y:2014:i:c:p:216-230
    DOI: 10.1016/j.jcorpfin.2014.05.010
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    Cited by:

    1. Dayanandan, Ajit & Donker, Han & Nofsinger, John, 2022. "Taxing share repurchases," Economics Letters, Elsevier, vol. 221(C).
    2. DeLisle, R. Jared & Morscheck, Justin D. & Nofsinger, John R., 2020. "Share repurchases and wealth transfer among shareholders," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 368-378.
    3. Dayanandan, Ajit & Donker, Han & Kuntluru, Sudershan & Nofsinger, John, 2020. "Share buybacks in India," Research in International Business and Finance, Elsevier, vol. 54(C).
    4. Vinh Huy Nguyen & Suchismita Mishra & Pankaj K. Jain, 2022. "Institutional trading around repurchase announcements: An uphill battle," The Financial Review, Eastern Finance Association, vol. 57(3), pages 485-507, August.
    5. Wang, Jin-Ying, 2023. "Tax clientele and share repurchase execution," The Quarterly Review of Economics and Finance, Elsevier, vol. 88(C), pages 168-176.
    6. Bonaimé, Alice A. & Hankins, Kristine W. & Jordan, Bradford D., 2016. "The cost of financial flexibility: Evidence from share repurchases," Journal of Corporate Finance, Elsevier, vol. 38(C), pages 345-362.

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    More about this item

    Keywords

    Institutional investors; Share repurchases; Liquidity; Information asymmetry;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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