Original Research

Why do closed-end funds repurchase stock?

Tianna Yang
South African Journal of Business Management | Vol 49, No 1 | a14 | DOI: https://doi.org/10.4102/sajbm.v49i1.14 | © 2018 Tianna Yang | This work is licensed under CC Attribution 4.0
Submitted: 05 March 2018 | Published: 29 March 2018


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Abstract

With special institutional characteristics and regulatory requirements, what factors can motivate UK closed-end funds to engage in open-market repurchases? Investigating repurchase transactions on financial-year basis, I find that funds repurchase shares to reduce discounts and to increase the net asset value per share, as directors claim, but not to increase fund liquidity. I also find that funds repurchase shares to increase leverage ratios. Unlike conventional firms, neither distributing excess cash nor substituting dividend payouts promote fund repurchases. Fund size has a negative effect on repurchase decision.

Keywords

closed-end fund; repurchase; discount; net asset value; liquidity

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