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Stock repurchases and liquidity

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  • Hillert, Alexander
  • Maug, Ernst
  • Obernberger, Stefan

Abstract

We analyze the impact of share repurchases on liquidity based on a new comprehensive data set of realized share repurchases in the US, which covers 50,204 repurchase months between 2004 and 2010. Using instrumental variable analysis, we show that repurchases unequivocally improve liquidity and suggest that endogenous controls have confounded results in earlier studies. Liquidity also influences how firms execute repurchase programs. Repurchases provide liquidity when other investors sell the firm's stock or in times of crisis. No evidence exists that firms reduce liquidity when they trade on private information.

Suggested Citation

  • Hillert, Alexander & Maug, Ernst & Obernberger, Stefan, 2016. "Stock repurchases and liquidity," Journal of Financial Economics, Elsevier, vol. 119(1), pages 186-209.
  • Handle: RePEc:eee:jfinec:v:119:y:2016:i:1:p:186-209
    DOI: 10.1016/j.jfineco.2015.08.009
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    Cited by:

    1. repec:bla:jfnres:v:40:y:2017:i:3:p:287-313 is not listed on IDEAS
    2. Nyborg, Kjell G & Wang,, 2019. "Corporate cash holdings: Stock liquidity and the repurchase motive," CEPR Discussion Papers 13791, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Share repurchases; Market microstructure; Liquidity; Limit order markets; Informed trading;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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