Repurchases for Price Impact: Evidence from Fragile Stocks

Massimo Massa, David Schumacher, and Yan Wang

♦ We highlight an important but overlooked characteristic of financial fragility: “fragile” stocks command higher liquidity. This reduces their sensitivity to corporate actions with price impact and affects the firms’ incentives to engage in such actions. We show that fragile firms have lower share repurchases, issue more equity, and invest more. We establish causality by relating changes in corporate actions to exogenous changes in fragility induced by mergers of asset managers. Our results suggest that financial fragility has direct but unexpected real implications for corporate actions.

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