I thank Leonce Bargeron, Marcus Braga-Alves, Paul Brockman (the referee), Vidhan Goyal, Ahmet Kurt, Ken Lehn, Marios Panayides, Kuldeep Shastri, Shawn Thomas, Chad Zutter, and seminar participants at Marquette University and the University of Pittsburgh for helpful comments and suggestions. Any errors remain my own.
MARKET MICRSOTRUCTURE CHANGES AROUND ACCELERATED SHARE REPURCHASE ANNOUNCEMENTS†
Article first published online: 19 MAR 2013
© 2013 The Southern Finance Association and the Southwestern Finance Association
Journal of Financial Research
Volume 36, Issue 1, pages 91–114, Spring 2013
How to Cite
Kulchania, M. (2013), MARKET MICRSOTRUCTURE CHANGES AROUND ACCELERATED SHARE REPURCHASE ANNOUNCEMENTS. Journal of Financial Research, 36: 91–114. doi: 10.1111/j.1475-6803.2013.12004.x
- Issue published online: 19 MAR 2013
- Article first published online: 19 MAR 2013
I investigate the impact on trading characteristics of firms announcing share repurchases using a relatively new buyback method—accelerated share repurchases (ASRs). I find that trading costs decrease and market quality improves following an ASR announcement. The improvement in liquidity is not accompanied by significant changes in information asymmetry or price volatility. Multivariate tests show that the change in volatility and the presence of price constraints in the ASR agreement are significant in explaining the changes in spreads, but the reasons given by firms for conducting the ASRs are not. Thus, in the case of ASRs, the announced involvement of an investment bank buying shares on behalf of the firm improves liquidity without significantly affecting the level of information asymmetry.