Share Repurchase Offers and Liquidity: An Examination of Temporary and Permanent Effects


  • The authors thank Nick Dorsey and Sandeep Taneja for excellent research assistance. Zebedee gratefully acknowledges the financial support of San Diego State's Research, Scholarship, and Creative Activity Program. Nayar is grateful for financial support from the Hans Julius Bär Chair. The comments of an anonymous referee and of Anne-Marie Anderson, William Christie, Srini Krishnamurthy, C.N.V. Krishnan, Ji-Chai Lin, and participants in presentations at the Securities and Exchanges Commission (SEC), Asian Finance Association (Kuala Lumpur), the Copenhagen Business School, and the FMA Conference helped to significantly improve the analysis in the paper. We remain responsible for all errors.


Open-market repurchase programs do not allow for precise estimates of share buy-back intensity to measure liquidity effects. To circumvent the uncertainty surrounding the quantity and timing of shares truly acquired in repurchase programs and to measure their long-term impact, we examine Dutch auctions and fixed-price tender offers. We investigate both the temporary and permanent liquidity effects of share repurchase programs and find that the improvement in liquidity is transitory and limited to the tender period when the firm's offer to repurchase shares is outstanding. Improvements in liquidity over longer intervals appear to be the result of an overall price improvement and a reduction in volatility rather than the result of structural change in market dynamics.