Share repurchase tender oers and bid±ask spreads Hee-Joon Ahn a , Charles Cao b, * , Hyuk Choe c a Faculty of Business, City University of Hong Kong, Kowloon, Hong Kong b Department of Finance, Smeal College of Business, The Pennsylvania State University, 609 Business Administration Building, University Park, PA 16802, USA c College of Business Administration, Seoul National University, Seoul, South Korea Received 25 January 1999; accepted 11 November 1999 Abstract This paper examines the impact of share repurchase tender oers on the market microstructure. We ®nd that there is a temporary reduction in the bid±ask spread, and a temporary increase in volume and quotation depth during the oer period. Our evidence suggests that the bid±ask spread is asymmetric during the oer period with the bid-side spread smaller than the ask-side spread. The temporary reduction in the spread around oers is consistent with the competing-market-maker hypothesis which predicts that the intensi®ed competition for the market maker raises bid prices and narrows the spread asymmetrically during the oer period. Ó 2001 Elsevier Science B.V. All rights reserved. JEL classi®cation: G10; G12; G13 Keywords: Market microstructure; Bid±ask spreads and competition; Spread asymme- try; Risk arbitrage; Repurchase tender oers 1. Introduction An extensive body of literature has been written on the impact of corporate share repurchases on stock prices. However, few studies investigate the Journal of Banking & Finance 25 (2001) 445±478 www.elsevier.com/locate/econbase * Corresponding author. Tel.: +1-814-865-7891; fax: +1-814-865-3362. E-mail address: charles@loki.smeal.psu.edu (C. Cao). 0378-4266/01/$ - see front matter Ó 2001 Elsevier Science B.V. All rights reserved. PII: S 0 3 7 8 - 4 2 6 6 ( 0 0 ) 0 0 0 8 4 - 4