Treasury stock holdings, stock liquidity and the role of ESG performance: a global perspective

This study examines the relationship between treasury stock holdings, ESG performance, and stock liquidity using a large global panel of firms. Employing 112,735 firm-year observations from 81 countries over the period 2007–2023, we document that higher treasury stock holdings—measured as cumulative balance-sheet treasury stock—are significantly positively associated with increased stock illiquidity. This finding is consistent with market microstructure predictions that sustained reductions in free float impair market depth and widen trading frictions. In contrast, firms with stronger ESG performance exhibit significantly higher stock liquidity, reflecting improvements in the firm’s information environment and governance quality. Moreover, ESG performance moderates the adverse liquidity effects of treasury stock holdings in the main specifications, weakening the positive association between treasury stock accumulation and illiquidity. By shifting the focus from short-term repurchase events to cumulative treasury stock holdings and highlighting the conditioning role of ESG performance, this study contributes to the literature on corporate finance, market microstructure, and sustainability.