Managerial timing and corporate liquidity: evidence from actual share repurchases

We investigate the timing of open market share repurchases and the resultan t impact on firm liquidity. Using the Stock Exchange of Hong Kong's unique disclosure environment, we identify the exact implementation dates for more than five thousand equity buybacks. We find that managers exhibit substant ial timing ability. Consistent with the information-asymmetry hypothesis, b id-ask spreads widen and depths narrow during repurchase periods. We decomp ose bid-ask spreads and show that adverse selection costs increase substant ially as market participants respond to the presence of informed managerial trading. Our findings provide additional insight into how markets process information and have significant implications for corporate payout and disc losure policies. (C) 2001 Elsevier Science S.A. All rights reserved.