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Stock Liquidity Sidedness and Share Repurchase

Author

Listed:
  • Sabri Boubaker

    (Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School)

  • Arman Eshraghi
  • Yifan Liu

Abstract

We show that stock liquidity sidedness plays a vital role in share repurchase decisions. Specifically, we investigate whether share repurchases are affected differently by upside and downside liquidity, which respectively correspond to positive and negative return days. Using a sample of U.S. publicly-listed firms over four decades, we demonstrate that upside liquidity has a larger effect on repurchase initiation, amount, and ratio. Managers of repurchasing firms are more concerned with upside liquidity because they expect their repurchase activities to propel stock prices upward rather than down. The relationship between liquidity sidedness and repurchase decisions is more pronounced for financially constrained firms but less so for firms with higher stock price informativeness. We mitigate potential endogeneity concerns by using the market and industry liquidity sidedness as instruments and exploiting the 2003 Amendment to SEC Rule 10b-18 as an exogenous shock to the information advantages of repurchasing firms. Overall, our findings underscore the importance of market microstructure in shaping corporate policies.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Sabri Boubaker & Arman Eshraghi & Yifan Liu, 2024. "Stock Liquidity Sidedness and Share Repurchase," Post-Print hal-04852227, HAL.
    • Handle: RePEc:hal:journl:hal-04852227
    DOI: 10.1016/j.irfa.2024.103468
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    Cited by:

    1. Li, Xin & Xu, Zihan & Mei, Dexiang & Wang, Yu, 2025. "Optimal share repurchase decision model for retailers under supply chain collaboration," International Review of Financial Analysis, Elsevier, vol. 103(C).
    2. Fu, Huilian & Cai, Jingyi & Xia, Sinan & Zhou, Lianjie, 2025. "Investor network attention, information disclosure quality, and stock liquidity in enterprises," Finance Research Letters, Elsevier, vol. 79(C).

    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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