Managerial Timing and Corporate Liquidity: Evidence from Actual Share Repurchases

Posted: 2 Dec 2000

See all articles by Paul Brockman

Paul Brockman

Lehigh University - College of Business

Dennis Y. Chung

Simon Fraser University

Abstract

The purpose of this paper is to investigate the timing of open market share repurchases and its resultant impact on corporate liquidity. We identify the exact implementation dates for over 5,000 equity buybacks on the Stock Exchange of Hong Kong between November 1991 and August 1999. A bootstrapping method is used to distinguish managerial timing ability from a naive accumulation plan. The results show that managers exhibit substantial timing ability. Consistent with the information-asymmetry hypothesis (Barclay and Smith (1988 Journal of Financial Economics 22, 61-82)), we find strong evidence that bid-ask spreads widen and depths narrow during repurchase periods. We further decompose bid-ask spreads and show that the adverse selection component increases substantially when market participants respond to the presence of informed managerial trading. Overall, our market timing, spread and depth, and decomposition results reveal a coherent picture of managerial buyback behavior and its impact on firm liquidity. Our results have significant implications for corporate payout and disclosure policies.

Note: This is a description of the article and not the actual abstract.

JEL Classification: G350

Suggested Citation

Brockman, Paul and Chung, Dennis Y., Managerial Timing and Corporate Liquidity: Evidence from Actual Share Repurchases. Journal of Financial Economics. Available at SSRN: https://ssrn.com/abstract=244649

Paul Brockman (Contact Author)

Lehigh University - College of Business ( email )

Bethlehem, PA 18015
United States

Dennis Y. Chung

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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