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Actual Share Repurchases, Price Efficiency, and the Information Content of Stock Prices

Review of Financial Studies, 30 (1), 324-362, 2017.

87 Pages Posted: 8 Oct 2014 Last revised: 14 Mar 2017

Pascal Busch

University of Mannheim; University of Mannheim - Graduate School of Economic and Social Sciences

Stefan Obernberger

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

Date Written: October 26, 2015

Abstract

We examine the impact of actual share repurchases on stock prices using several measures of price efficiency and manually collected data on U.S. repurchases. We find that share repurchases make prices more efficient and reduce idiosyncratic risk. Further analyses reveal that the effects are primarily driven by repurchases in down markets. We conclude that share repurchases help to maintain accurate stock prices by providing price support at fundamental values. We find no evidence that managers use share repurchases to manipulate stock prices when selling their equity holdings or exercising stock options.

Keywords: Share repurchases, market efficiency, price efficiency, liquidity

JEL Classification: G10, G30, G35

Suggested Citation

Busch, Pascal and Obernberger, Stefan, Actual Share Repurchases, Price Efficiency, and the Information Content of Stock Prices (October 26, 2015). Review of Financial Studies, 30 (1), 324-362, 2017.. Available at SSRN: https://ssrn.com/abstract=2506671 or http://dx.doi.org/10.2139/ssrn.2506671

Pascal Busch (Contact Author)

University of Mannheim ( email )

Mannheim, 68131
Germany

University of Mannheim - Graduate School of Economic and Social Sciences ( email )

D7, 27
Mannheim, 68131
Germany

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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