Corporate Repurchase Programs: Evidence on the Competing-Market-Maker Hypothesis

Abstract

Open market repurchases are hypothesized to widen bid-ask spreads due to information asymmetries. We design and implement a powerful test to detect evidence of a spread narrowing "competing-market-maker" effect on corporate repurchase days. Our study is unique in that we identify 2190 actual corporate repurchase trade days covering 64 firms listed on the NYSE and/or NASDAQ. Controlling for non-repurchase related factors, we find a significant narrowing in bid-ask spreads on the NASDAQ relative to three benchmarks. On the NYSE, we find a widening of the spread relative to a pre-announcement period and a narrowing relative to contiguous non-corporate trade days. Our evidence is consistent with a discernible competing-market-maker effect. We relate our results to the costs and benefits of repurchase programs and to exchange listing decisions.

JEL Classification: G19