Optimal Execution of Open-Market Stock Repurchase Programs
54 Pages Posted: 16 Mar 2005 Last revised: 13 Jan 2011
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: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Disappearing Dividends: Changing Firm Characteristics or Lower Propensity to Pay?
By Eugene F. Fama and Kenneth R. French
-
Dividends, Share Repurchases, and the Substitution Hypothesis
By Gustavo Grullon and Roni Michaely
-
Payout Policy in the 21st Century
By Alon Brav, John R. Graham, ...
-
Payout Policy in the 21st Century
By Alon Brav, Campbell R. Harvey, ...
-
Financial Flexibility and the Choice between Dividends and Stock Repurchases
By Clifford P. Stephens, Murali Jagannathan, ...
-
By Roni Michaely and Franklin Allen
-
By Joan Farre-mensa, Roni Michaely, ...
-
Payout Policy in the 21th Century: The Data
By Alon Brav, Campbell R. Harvey, ...
-
A Catering Theory of Dividends
By Malcolm P. Baker and Jeffrey Wurgler
-
A Catering Theory of Dividends
By Malcolm P. Baker and Jeffrey Wurgler