The authors illustrate the value to shareholders when closed-end funds repurchase shares at a discount from net asset value. Repurchases increase share price even when there is no asymmetric information concerning the value of the underlying assets and the percentage discount remains unchanged following the repurchase. Expected gains to shareholders are derived from capturing the discount on the assets associated with the shares repurchased. In an analysis of 27 open market repurchase announcements by closed-end funds, the regression coefficient estimate that measures the association between the actual excess return and the expected increase in share price is essentially 1.0.
The Journal of Business, Volume 72, Issue 2, 1999, pages 257-276.
© 1999 The University of Chicago