A Study On The Impact Of Stock Buybacks On Stock Liquidity

Stock repurchase is a form of allocation of a listed company’s own capital,whereby the company buys a set number of shares from the market that are outstanding with its own funds.Listed companies can use the open market to repurchase shares to improve the information environment for investors,thus achieving the purpose of stabilizing share prices.In recent years,with the development of the capital market,share repurchases have gradually received more and more attention from investors and companies as an important way to operate financial assets.For a stock,liquidity reflects the degree of investor preference for it.Stock liquidity,as a market-level concept,has always been a critical foundation for stock trading.Stock buybacks originated in the United States.In Western countries,share buybacks have become an important form of corporate stabilization of share prices and enhancement of investor confidence.In Zhongguo,the development history of share repurchases is relatively short,coupled with the influence of various factors such as national policies and economic development,the number of companies announcing repurchases is relatively small.However,due to the continuous development of China’s capital market in recent years,the scale of share repurchases has increased year by year and the forms of repurchases have become increasingly diversified.Large-scale share repurchases have had an important impact on various aspects of the capital market,including the impact on stock liquidity.With the further development of the share repurchase market,the repurchase behavior of enterprises has become an increasingly hot topic of scholarly attention.Current domestic research on share repurchases has mostly focused on case studies of repurchase motives and market effects.Little attention has been paid to the effect of open market repurchases on stock liquidity.Based on the analysis of the existing literature,there is bound to be some connection between firms’ stock repurchase behavior and their liquidity.To this end,this paper uses information transmission theory as a theoretical basis to investigate the effect of public market share repurchases on securities liquidity and the mechanism of the effect.According to the "information transmission effect" and the "competing market maker hypothesis," in a modern corporate system where ownership and management are separated from each other,management has the advantage of information and can act as an informed trader.Managers,as informed traders,use open market share repurchases to incorporate information about the characteristics of the facilitating firm into the market price.This will greatly increase the efficiency of market pricing and thus stock liquidity.Thus,for firms,open market stock repurchase behavior can improve stock liquidity.To this end,this paper selects A-share listed companies that issued open market share repurchase notices during the period from September 30,2008 to September 30,2021 as the subjects of this study.The study considers their illiquidity indicator Amihud as a measure of stock liquidity and investigates the impact of corporate share repurchase behavior on their stock liquidity in the context of an open capital market and its medium-action channel.An endogeneity study and robustness tests are conducted based on the main regression.Further studies are conducted to divide the sample according to analyst attention,book-to-market ratio,and firm size to discuss the significance of the impact of repurchases on stock liquidity under different conditions.It is found that(1)open market share repurchases can increase corporate stock liquidity.(2)The contribution of buybacks to increased stock liquidity is more significant for firms that are more frequently tracked by analysts.(3)For firms with undervalued stock prices,the contribution of repurchases to stock liquidity is more significant.(4)For large-scale firms,the effect of buybacks on stock liquidity is more significant.(5)The improvement of stock liquidity by buybacks can be achieved by increasing the information content of stock prices.The innovation of the article is mainly in the following two points: First,based on the study of the impact of public market share repurchases on stock liquidity,we consider stock price synchronization as a mediating variable and study the path of the effect of public market repurchase news on stock liquidity performance from a new perspective.The study of the path of action can better highlight the role played by information transmission in the process of public market share repurchases affecting firm stock liquidity.Second,in the part on the mediating effect of stock price synchronization,this paper chooses the Bootstrap method with stronger test validity to investigate the mediating role played by stock price synchronization,as opposed to the hierarchical regression method mostly used in previous literature.