Economics at your fingertips  

Is Price Support for Overvalued Equity a Motive for Increasing Share Repurchases?

Harrison Liu () and Edward Swanson
Additional contact information
Harrison Liu: UTSA

Working Papers from College of Business, University of Texas at San Antonio

Abstract: Economy-wide, corporate share repurchases increase at market tops, suggesting that price support for overvalued equity could be a motive for repurchasing stock. We investigate this possibility using short selling as a proxy for sophisticated investors’ beliefs about firm valuation. Regressing changes in share repurchases on changes in short interest (and control variables), we find a robust positive association, which is consistent with price support being a significant motive for increasing share repurchases. Examining the subsequent two years, companies with increases in short interest accompanying an increase in repurchases experience a sizable decline in profitability, liquidity, and stock price.

Keywords: overvalued equity; share repurchases (search for similar items in EconPapers)
JEL-codes: M40 (search for similar items in EconPapers)
Date: 2015-12-08
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link) Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Working Papers from College of Business, University of Texas at San Antonio Contact information at EDIRC.
Bibliographic data for series maintained by Wendy Frost ().

Page updated 2018-06-21
Handle: RePEc:tsa:wpaper:0171acc