Do Share Buybacks Provide Price Support? Evidence From Mandatory Non‐Trading Periods

Aneel Keswani, Jing Yang and Steven Young

Journal of Business Finance & Accounting, 2007, vol. 34, issue 5‐6, 840-860

Abstract: Abstract: Financial regulators, analysts and journalists have expressed concern that open market share repurchases may help support share prices. We test this conjecture by examining repurchasing firms' share price patterns on entering mandatory non‐trading periods imposed by the London Stock Exchange. If buybacks provide price support, we would expect to observe price declines when trading bans force firms to suspend their buyback program. Consistent with claims that open market buybacks provide price support, we document average price declines when repurchasing firms enter mandatory non‐trading periods. We also find that the magnitude of the price decline varies cross‐sectionally with proxies for the price support impact of repurchases in the predicted manner. However, economic and statistical significance levels are moderate and largely confined to non‐trading periods preceding interim results announcements, casting doubt on whether trading profits could be earned by exploiting this information.

Date: 2007
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