Share repurchases and institutional supply

Jared DeLisle, J.D. Morscheck and John R. Nofsinger

Journal of Corporate Finance, 2014, vol. 27, issue C, 216-230

Abstract: Consistent with the predictions of Brennan and Thakor's (1990) model of shareholder preferences, we find that, on average, institutional shareholders are net sellers during share repurchases. After controlling for liquidity provision and characteristics investing, we find that a one standard deviation increase in share repurchases during a given quarter is associated with a 0.11 standard deviation decrease in institutional investor demand. We estimate that 37% of the inverse relation is attributed to institutional investors executing liquidity provision strategies, 8% is explained by institutions reacting to the investment characteristics signaled by a repurchasing firm. We attribute the majority, 55%, to the information asymmetry between institutions and individual investors. This work is one of the first to exploit the SEC mandate requiring firms to report the actual number of shares they repurchase each quarter, beginning in 2004. Using actual number of shares repurchased, we find evidence of institutional investors increasing their selling as firms increase their repurchasing. This finding is robust to models of endogeneity and autocorrelation in share repurchases and institutional investor trading.

Keywords: Institutional investors; Share repurchases; Liquidity; Information asymmetry (search for similar items in EconPapers)
JEL-codes: G11 G12 G23 G24 G35 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:27:y:2014:i:c:p:216-230

DOI: 10.1016/j.jcorpfin.2014.05.010

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