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On the Timing and Execution of Open Market Repurchases

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  • Douglas O. Cook

Abstract

Little is known about the timing and execution of open market repurchases. U.S. firms are under no obligation to disclose when they are trading, and generally report only quarterly changes in shares outstanding. We use 64 firms' supplementally disclosed repurchase trading data to provide the first examination of repurchase timing and execution. Across the days reported in our sample, firms adopted a variety of execution styles ranging from immediate intense repurchasing to delayed and smoothed repurchasing. We find no clear evidence that repurchases are timed to coincide with, precede, or follow, days on which information is released. We benchmark the costs and value of a given repurchase program against naive accumulation strategies achieving the same terminal portfolio. While there is considerable variation across the firms, NYSE firms on average beat their benchmarks, whereas NASDAQ firms do not. Finally, we document the liquidity impact of open market repurchases. We find that repurchasing contributes to market liquidity by narrowing bid-ask spreads and attenuating the price impact of order imbalances on days when repurchase trades are completed. Copyright 2004, Oxford University Press.

Suggested Citation

  • Douglas O. Cook, 2004. "On the Timing and Execution of Open Market Repurchases," Review of Financial Studies, Society for Financial Studies, vol. 17(2), pages 463-498.
  • Handle: RePEc:oup:rfinst:v:17:y:2004:i:2:p:463-498
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    File URL: http://hdl.handle.net/10.1093/rfs/hhg028
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    Cited by:

    1. Ben-Rephael, Azi & Oded, Jacob & Wohl, Avi, 2011. "Do firms buy their stock at bargain prices? Evidence from actual stock repurchase disclosure," CFS Working Paper Series 2011/17, Center for Financial Studies (CFS).
    2. Drousia, Angeliki & Episcopos, Athanasios & Leledakis, George N., 2016. "Market Reaction to Actual Daily Share Repurchases in Greece," MPRA Paper 83039, University Library of Munich, Germany, revised 01 Aug 2017.
    3. Ginglinger, Edith & Hamon, Jacques, 2007. "Actual share repurchases, timing and liquidity," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 915-938, March.
    4. Manoj Kulchania, 2013. "Market Micrsotructure Changes Around Accelerated Share Repurchase Announcements," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 36(1), pages 91-114, January.
    5. repec:kap:rqfnac:v:50:y:2018:i:1:d:10.1007_s11156-017-0624-2 is not listed on IDEAS
    6. McNally, William J. & Smith, Brian F., 2007. "Long-run returns following open market share repurchases," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 703-717, March.
    7. Dennis Y. Chung & Dušan Isakov & Christophe Pérignon, 2005. "Repurchasing Shares on a Second Trading Line," FSES Working Papers 391, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    8. repec:eee:jaecon:v:63:y:2017:i:2:p:207-230 is not listed on IDEAS
    9. Jun, Sang-gyung & Jung, Mookwon & Walkling, Ralph A., 2009. "Share repurchase, executive options and wealth changes to stockholders and bondholders," Journal of Corporate Finance, Elsevier, vol. 15(2), pages 212-229, April.
    10. Lee, Bong Soo & Mauck, Nathan, 2014. "Information Asymmetry and the Market Response to Open Market Share Repurchases," MPRA Paper 54066, University Library of Munich, Germany.
    11. Jung-Hua Hung & Yi-Pei Chen, 2010. "Equity Undervaluation and Signaling Power of Share Repurchases with Legal Restrictions," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(2), pages 101-115, March.
    12. 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.
    13. Brockman, Paul & Howe, John S. & Mortal, Sandra, 2008. "Stock market liquidity and the decision to repurchase," Journal of Corporate Finance, Elsevier, vol. 14(4), pages 446-459, September.
    14. De Cesari, Amedeo & Espenlaub, Susanne & Khurshed, Arif & Simkovic, Michael, 2012. "The effects of ownership and stock liquidity on the timing of repurchase transactions," Journal of Corporate Finance, Elsevier, vol. 18(5), pages 1023-1050.
    15. Andriosopoulos, Dimitris & Andriosopoulos, Kostas & Hoque, Hafiz, 2013. "Information disclosure, CEO overconfidence, and share buyback completion rates," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5486-5499.
    16. 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.
    17. Jung-Hua Hung & Yi-Pei Chen, 2010. "Equity Undervaluation and Signaling Power of Share Repurchases with Legal Restrictions," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(2), pages 101-115, March.
    18. 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.
    19. Craig W. Holden & Stacey Jacobsen & Avanidhar Subrahmanyam, 2014. "The Empirical Analysis of Liquidity," Foundations and Trends(R) in Finance, now publishers, vol. 8(4), pages 263-365, December.
    20. Fuller, Kathleen P. & Goldstein, Michael A., 2011. "Do dividends matter more in declining markets?," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 457-473, June.
    21. Li, Lingxiang, 2016. "New findings on repurchase anomaly — The first-month effect," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 331-349.
    22. Agarwalla, Sobhesh Kumar & Jacob, Joshy & Vasudevan, Ellapulli, 2013. "Market Timing Ability of Indian Firms in Open Market Repurchases," IIMA Working Papers WP2013-11-10, Indian Institute of Management Ahmedabad, Research and Publication Department.
    23. Hillert, Alexander & Maug, Ernst & Obernberger, Stefan, 2016. "Stock repurchases and liquidity," Journal of Financial Economics, Elsevier, vol. 119(1), pages 186-209.
    24. 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.
    25. Haw, In-Mu & Ho, Simon S.M. & Hu, Bingbing & Zhang, Xu, 2011. "The contribution of stock repurchases to the value of the firm and cash holdings around the world," Journal of Corporate Finance, Elsevier, vol. 17(1), pages 152-166, February.

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