Abstract
This study examines whether stock market liquidity affects a real estate investment trust's (REIT's) decision to initiate a share repurchase program. The results show that repurchasing REITs exhibit a higher liquidity than their peers that do not initiate a repurchase program. After controlling for other possible motivations for share repurchases, there is little evidence that liquidity affects repurchase initiations by REITs. REITs tend to initiate a share repurchase program when operating cash flows are sufficient, financial leverage is low, and market value is large. Also, liquidity does not influence a REIT's decision to substitute repurchases for extra dividends. Overall, the findings suggest that liquidity does not affect a REIT's decision to repurchase its shares.
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