Stock Repurchases and Liquidity

76 Pages Posted: 20 Dec 2013 Last revised: 16 Jun 2016

See all articles by Alexander Hillert

Alexander Hillert

Goethe University Frankfurt - Department of Finance

Ernst G. Maug

University of Mannheim Business School; European Corporate Governance Institute (ECGI)

Stefan Obernberger

Erasmus University Rotterdam - Erasmus School of Economics; Erasmus Research Institute of Management (ERIM)

Date Written: February 18, 2015

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. There is no evidence that firms reduce liquidity when they trade on private information.

Keywords: Share repurchases, market microstructure, liquidity, limit order markets, informed trading

JEL Classification: G10, G30, G35

Suggested Citation

Hillert, Alexander and Maug, Ernst G. and Obernberger, Stefan, Stock Repurchases and Liquidity (February 18, 2015). Journal of Financial Economics (JFE), 119 (1), 186-209, 2016.. Available at SSRN: https://ssrn.com/abstract=2369470 or http://dx.doi.org/10.2139/ssrn.2369470

Alexander Hillert

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Grueneburgplatz 1
Frankfurt am Main, Hessen 60323
Germany

Ernst G. Maug (Contact Author)

University of Mannheim Business School ( email )

L9, 1-2
Mannheim, 68131
Germany
+49 621 181-1952 (Phone)

HOME PAGE: http://cf.bwl.uni-mannheim.de/de/people/maug/

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Stefan Obernberger

Erasmus University Rotterdam - Erasmus School of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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