Do Institutions and Firms Trade in Tandem With One Another? Evidence From Share Repurchases

52 Pages Posted: 7 Jun 2019

See all articles by Thuong Harvison

Thuong Harvison

Frostburg State University; University of Arizona, Eller College of Management, Department of Finance

Date Written: January 20, 2019

Abstract

I study repurchase motives by examining trading from institutional investors, usually considered informed traders, around the events. When firms conduct repurchases, the likelihood of institutional selling increases and institutional buying decreases, consistent firms repurchasing to provide liquidity to institutional traders. A negative relation between repurchase intensity and changes in institutional ownership before and during repurchase quarter, but not in the quarter after the events, suggests that firms buy back shares to provide liquidity to institutional selling and not vice versa. The results hold across all types of institutions and are stronger for illiquid stocks. Institutional trading adds value to repurchase signals: Repurchases with concurrent institutional buying are associated with significantly higher abnormal returns than those with net institutional selling in the quarter before and up to two quarters in the future around share repurchases. The relation between ex-post returns and institutional trading is stronger for active and transient institutions.

Keywords: institutional investors, institutional holding, share repurchases, liquidity

JEL Classification: G23, G35

Suggested Citation

Harvison, Thuong, Do Institutions and Firms Trade in Tandem With One Another? Evidence From Share Repurchases (January 20, 2019). Available at SSRN: https://ssrn.com/abstract=3391459 or http://dx.doi.org/10.2139/ssrn.3391459

Thuong Harvison (Contact Author)

Frostburg State University ( email )

Frampton Hall
Frostburg, MD 21532
United States

University of Arizona, Eller College of Management, Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tuscon, AZ 85721
United States

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