Stock repurchases and liquidity

Stock Market Liquidity: Financially Constrained Firms and Share Repurchase

“…In other words, lagged illiquidity prompts firms to repurchase shares, and repurchase intensity enhances market liquidity, consistent with Hypothesis 2. This is also consistent with Hillert et al (2016), who postulate that firms supply liquidity to the market when they repurchase a large number of shares, and this effect is most pronounced for illiquid markets. My analysis improves upon Hillert et al (2016) in that I employ 2SLS to control for endogeneity, while they use lagged illiquidity in their OLS regressions and do not control for selection bias.…”

“…By not separating financially constrained firms from unconstrained firms, previous studies appear to have missed the effect of stock repurchases on liquidity. My results are consistent with Hillert, Maug and Obernberger (2016), who find that firms supply liquidity to the market when they repurchase a large number of shares, particularly in illiquid markets. However, they do not study the impact of improved liquidity on firm behavior, but instead focus on the market microstructure features of share repurchase.…”

“…Ben-Rephael, Oded, and Wohl (2014) study recently disclosed, realized open market repurchases and find ambiguous results and conclude from indirect evidence that repurchasing firms consume liquidity rather than provide it. More recently, Hillert et al (2016), using a new comprehensive data set of realized share repurchases in the US, show that repurchases unequivocally improve liquidity and suggest that endogenous controls have confounded results in earlier studies. Busch and Obernberger (2017) find that share repurchases make prices more efficient and reduce idiosyncratic risk, and that the effects are more pronounced during market downturn.…”

“…This measure is a repurchase intensity measure because a high value indicates greater repurchase dollars per thousand dollar trading volume. Hillert et al (2016) construct similar measures of repurchase intensity, but use number of shares outstanding as the denominator.…”

Advertising, Attention, and Financial Markets

“…We would like to thank Olga Lebedeva and Stefan Obernberger for providing us with their data set. This data set has also been used inLebedeva (2012) andHillert, Maug, and Obernberger (2014).8 We would like to thank Alexander Hillert for providing us with the media coverage data. This data set has also been used inHillert, Jacobs, and Mueller (2014).9 Moat, Curme, Avakian, Kenett, Stanley, and Preis (2013) use weekly page views for the 30 DJIA stocks.…”