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The Price Effect of Stock Repurchases: Evidence from Dual Class Firms

Author

Listed:
  • Leonce Bargeron

    (Gatton College of Business & Economics, University of Kentucky, Lexington, Kentucky 40506)

  • Michael Farrell

    (Lubar School of Business, University of Wisconsin-Milwaukee, Milwaukee, Wisconsin 53202)

Abstract

We examine a sample of dual-class firms to isolate the magnitude and duration of the demand-driven price effect from stock repurchases. In this novel setting, the non-repurchased class serves as a near-perfect counterfactual to the repurchased class and controls for private information about firm value contained in the repurchases. The average repurchase in our sample, 0.30% of outstanding shares within a month, increases the stock price by 40 to 70 basis points relative to the non-repurchased class of stock. The effect dissipates completely over the subsequent month unless extended by continued repurchases. This small, short-lived price effect leaves little scope for CEOs to benefit from value-destroying repurchases motivated by self-interest.

Suggested Citation

  • Leonce Bargeron & Michael Farrell, 2021. "The Price Effect of Stock Repurchases: Evidence from Dual Class Firms," Management Science, INFORMS, vol. 67(10), pages 6568-6580, October.
    • Handle: RePEc:inm:ormnsc:v:67:y:2021:i:10:p:6568-6580
    DOI: 10.1287/mnsc.2021.4066
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    References listed on IDEAS

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