Optimal Execution of Open-Market Stock Repurchase Programs

54 Pages Posted: 16 Mar 2005 Last revised: 13 Jan 2011

See all articles by Jacob Oded

Jacob Oded

Tel Aviv University - Coller School of Management

Date Written: March 11, 2008

Abstract

We provide a theoretical investigation of the execution of open-market stock repurchase programs. Our model suggests that the execution depends on availability of free cash and information asymmetry. The results highlight important features of open-market stock repurchase programs: they leave the firm the option to avoid payout when cash is needed for operations, yet they also disburse free cash as long as the stock is not severely overpriced. Because they are preformed at management discretion, however, repurchase programs also re-distribute wealth among shareholders. The model generates predictions about the completion rate of the programs and about the bid-ask spread during the repurchase period that might explain inconsistencies among earlier empirical studies.

Keywords: Stock Repurchases

JEL Classification: G35

Suggested Citation

Oded, Jacob, Optimal Execution of Open-Market Stock Repurchase Programs (March 11, 2008). Available at SSRN: https://ssrn.com/abstract=687366 or http://dx.doi.org/10.2139/ssrn.687366

Jacob Oded (Contact Author)

Tel Aviv University - Coller School of Management ( email )

Ramat Aviv
Tel-Aviv, 6997801
Israel

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