Corporate Repurchase Programs: Evidence on the Competing-Market-Maker Hypothesis

Posted: 13 Jul 1998

See all articles by J. Chris Leach

J. Chris Leach

University of Colorado at Boulder - Department of Finance

Douglas O. Cook

University of Alabama - Culverhouse College of Commerce & Business Administration

Laurie Krigman

Babson College

Date Written: Undated

Abstract

Open market repurchases are hypothesized to widen bid-ask spreads due to information asymmetries. We design and implement a powerful test to detect evidence of a spread narrowing "competing-market-maker" effect on corporate repurchase days. Our study is unique in that we identify 2190 actual corporate repurchase trade days covering 64 firms listed on the NYSE and/or NASDAQ. Controlling for non-repurchase related factors, we find a significant narrowing in bid-ask spreads on the NASDAQ relative to three benchmarks. On the NYSE, we find a widening of the spread relative to a pre-announcement period and a narrowing relative to contiguous non-corporate trade days. Our evidence is consistent with a discernible competing-market-maker effect. We relate our results to the costs and benefits of repurchase programs and to exchange listing decisions.

JEL Classification: G19

Suggested Citation

Leach, J. Chris and Cook, Douglas O. and Krigman, Laurie, Corporate Repurchase Programs: Evidence on the Competing-Market-Maker Hypothesis (Undated ). Available at SSRN: https://ssrn.com/abstract=6976

J. Chris Leach (Contact Author)

University of Colorado at Boulder - Department of Finance ( email )

Campus Box 419
Boulder, CO 80309-0419
United States
303-492-5665 (Phone)
303-492-5962 (Fax)

Douglas O. Cook

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
Tuscaloosa, AL 35487-0223
United States
205-348-8971 (Phone)
205-348-0590 (Fax)

Laurie Krigman

Babson College ( email )

Finance Division
321 Tomasso Hall
Babson Park, MA 02457-0310
United States
781-239-4246 (Phone)

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