Do Share Buybacks Provide Price Support? Evidence from Mandatory Non-Trading Periods

21 Pages Posted: 11 Jul 2007

See all articles by Aneel Keswani

Aneel Keswani

Faculty of Finance, Cass Business School, City University, London

Jing Yang

Lancaster University - Department of Accounting and Finance

Steven Young

Lancaster University - Department of Accounting and Finance

Abstract

Financial regulators, analysts and journalists have expressed concern that open market share repurchases may help support share prices. We test this conjecture by examining repurchasing firms' share price patterns on entering mandatory non-trading periods imposed by the London Stock Exchange. If buybacks provide price support, we would expect to observe price declines when trading bans force firms to suspend their buyback program. Consistent with claims that open market buybacks provide price support, we document average price declines when repurchasing firms enter mandatory non-trading periods. We also find that the magnitude of the price decline varies cross-sectionally with proxies for the price support impact of repurchases in the predicted manner. However, economic and statistical significance levels are moderate and largely confined to non-trading periods preceding interim results announcements, casting doubt on whether trading profits could be earned by exploiting this information.

JEL Classification: G12, G15, G35

Suggested Citation

Keswani, Aneel and Yang, Jing and Young, Steven, Do Share Buybacks Provide Price Support? Evidence from Mandatory Non-Trading Periods. Journal of Business Finance & Accounting, Vol. 34, Nos. 5-6, pp. 840-860, June/July 2007, Available at SSRN: https://ssrn.com/abstract=999768 or http://dx.doi.org/10.1111/j.1468-5957.2007.02009.x

Aneel Keswani (Contact Author)

Faculty of Finance, Cass Business School, City University, London ( email )

106 Bunhill Row
London EC1Y 8TZ
Great Britain
+44 207 040 8763 (Phone)

Jing Yang

Lancaster University - Department of Accounting and Finance ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

Steven Young

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom
+441 5245-94242 (Phone)
+441 5248-47321 (Fax)

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