Faculty of Economics and Business Administration Publications Database

Stock repurchases and liquidity

Maug, Ernst
Obernberger, Stefan
Volume: 119
Number: 1
Pages: 186 - 209
Month: January
ISSN-Print: 0304-405X
Link External Source: Online Version
Year: 2016
Keywords: Share repurchases; Market microstructure; Liquidity; Limit order markets; Informed trading

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. No evidence exists that firms reduce liquidity when they trade on private information.