Understanding equity repurchase motives for different firm set-up: Indian evidence

Corporates express their intention to reward shareholders during repurchase announcements by maximizing their wealth. However, most empirical research finds that stocks’ performance is poor when repurchase announcements are made, and there are no significant abnormal returns. In the Indian context, the present study examines firms’ real intention behind repurchase decisions. The sample comprises 132 firms listed on the Bombay Stock Exchange (BSE) from 2012 to 2018. A Tobit regression model has been used on different firm set-up. The empirical results reveal that low stock valuation is the prominent reason for buybacks among corporates. Firms prefer repurchases to provide abnormal returns to the investors; however, the Indian market does not react much positively to the repurchases, and this might be the reason for less encouraging buybacks in the Indian market. Further, the tender offer is the most preferred mode to open market repurchases. In the case of service firms, undervaluation, low earnings, and low debt ratios are the contributing factors impacting repurchases. Firms with low dividend intend to have more buybacks to reduce their tax burden. Acknowledgment The infrastructural support provided by FORE School of Management, New Delhi in completing this paper is gratefully acknowledged.

Download Full-text

Random Walk Investigation in Indian Market with special reference to S&P Nifty – Fifty Stocks

International Journal of Finance & Banking Studies (2147-4486) ◽

10.20525/ijfbs.v4i4.40 ◽

2015 ◽

Vol 4 (4) ◽

pp. 52-61

Author(s):

Tamilselvan Manickam ◽

R Madhumitha

Keyword(s):

Stock Market ◽

Stock Exchange ◽

Abnormal Returns ◽

Empirical Support ◽

Weak Form ◽

Indian Market ◽

Price Series ◽

Stock Market Efficiency ◽

Indian Stock Market ◽

Weak Form Efficiency

The competence of a financial system is entirely depending upon the stock market efficiency. The gradual growth of equity investor’s participation is inevitable to enrich the overall growth of emerging economies.Hence the necessity is felt to provide an empirical support to the investing community. For the purpose, this study attempts to examine the weak-form efficiency of Indian stock market – National Stock Exchange (NSE). The study has used the daily closing price of the Nifty fifty stocks from 3rdJanuary 2011 to 24thApril 2015. To test the weak form efficiency both parametric and non-parametric tests called Autocorrelation, Augmented Dicky Fuller test, and Runs Test were performed. The study reveals that 39 stocks of NSE-Nifty Fifty are found to be weak form inefficient, so that the investors can formulate trading strategies to gain abnormal returns. The Index and 10 stocks are found to be weak form efficient during the study period since the price series found to be autocorrelation existence.

Download Full-text

The Announcement Effects of Restricted Open Market Share Repurchases: Experience from Taiwan

Review of Pacific Basin Financial Markets and Policies ◽

10.1142/s0219091504000147 ◽

2004 ◽

Vol 07 (03) ◽

pp. 335-354 ◽

Cited By ~ 8

Author(s):

Miawjane Chen ◽

Chao-Liang Chen ◽

Wan-Hsiu Cheng

Keyword(s):

Abnormal Returns ◽

Free Cash Flow ◽

Share Repurchase ◽

Open Market ◽

Announcement Effects ◽

Significant Difference ◽

Repurchase Announcements ◽

Free Cash Flow Hypothesis ◽

Managerial Choice ◽

Signaling Hypothesis

In this paper we empirically examine the effects of 451 restricted share repurchase announcements in Taiwan. Their 3-day cumulative abnormal returns are all significantly positive for different purposes and Tobin's qs. However, there is no significant difference in abnormal returns for different repurchasing purposes. This indicates that mandating a purpose is not really an effective tool for limiting managerial choice. Moreover, when the related variables are controlled, the other empirical results we conducted indicate that, at least in Taiwan, the traditional signaling hypothesis and the free cash flow hypothesis can function simultaneously to explain the effects of the restricted repurchase announcements.

Download Full-text

Underreaction to open market share repurchases,

Revista Contabilidade & Finanças ◽

10.1590/1808-057x201806230 ◽

2019 ◽

Vol 30 (80) ◽

pp. 172-185 ◽

Cited By ~ 1

Author(s):

F. Henrique Castro ◽

Claudia Yoshinaga

Keyword(s):

Factor Model ◽

Abnormal Returns ◽

Open Market ◽

Stock Repurchase ◽

Long Run ◽

Average Abnormal Return ◽

Fama And French ◽

Repurchase Announcements ◽

Buy Back ◽

Term Performance

ABSTRACT This article aims to investigate the long-term performance of a portfolio of firms that announced the repurchase of their own stocks in the Brazilian market from 2003 to 2014. Open market stock repurchase is a means to distribute cashflow to shareholders. Some of the reasons for a firm to buy back its own stocks are: to adjust its capital structure; to reduce excessive cash levels; as an alternative to dividends; and signaling to the market in order to reduce information asymmetry between the firm and its investors. If the signaling hypothesis is true, then forming a portfolio with shares that announce repurchases generates abnormal returns in the long run. Our results show that repurchase announcements in the open market signal stock underpricing, and abnormal returns can be earned using this strategy. Results are inconsistent with the semi-strong form of the efficient markets hypothesis, which states that one cannot earn abnormal returns with publicly available information. We obtained abnormal returns using the capital asset pricing model (CAPM) and Fama and French three-factor model. Additionally, we divided the sample in growth and value firms. We found that the average abnormal return for firms that announce repurchase programs ranges from 5.4% to 7.9% for up to a 3-year period after the announcement. For value companies (more likely to repurchase stocks due to undervaluation), abnormal returns can reach up to 11.5% per year.

Download Full-text

An Inquiry into the Persistence of Holiday Effect on Stock Markets in India: Insights and Perspectives on a Seasonal Anomaly

FIIB Business Review ◽

10.1177/23197145211016894 ◽

2021 ◽

pp. 231971452110168

Author(s):

Meher Shiva Tadepalli ◽

Ravi Kumar Jain ◽

Bhimaraya Metri

Keyword(s):

Stock Market ◽

Stock Markets ◽

Stock Exchange ◽

Abnormal Returns ◽

Stock Exchanges ◽

Indian Market ◽

Pricing Models ◽

Market Anomalies ◽

Holiday Effect ◽

Stock Market Efficiency

Asset pricing is a key area of literature in analysing and evaluating the stock market efficiency. Though various pricing models made efforts to explain the behaviour of the stocks, the existence of seasonal anomalies in the stock markets creates an opportunity for the investors to generate abnormal returns. The present article emphasizes one of such market anomalies namely, the holiday effect using indices belonging to Indian stock exchanges. Thorough research is performed by including all the prime market-capital and sectoral indices of the National Stock Exchange and the Bombay Stock Exchange. The ARIMAX methodology is adopted to observe the anomaly by considering exogenous variables representing the trading days before the exchange-mandated holidays. Further, the strength of the anomaly is analysed with the incorporation of various stock market reforms and observed to be significantly persistent among most of the Indian market indices (including both the sectoral and the market-capital based indices).

Download Full-text

The market reactions to share repurchase announcements on the JSE: an event study

Investment Management and Financial Innovations ◽

10.21511/imfi.13(1-1).2016.06 ◽

2016 ◽

Vol 13 (1) ◽

pp. 191-205 ◽

Cited By ~ 1

Author(s):

Kiran Punwasi ◽

Pradeep Brijlal

Keyword(s):

Event Study ◽

Abnormal Return ◽

Stock Exchange ◽

Abnormal Returns ◽

Share Repurchase ◽

Announcement Effect ◽

Market Reactions ◽

Average Abnormal Return ◽

Repurchase Announcements ◽

A Share

This study examines the market reactions to share repurchase announcements made by companies listed on the Johannesburg Stock Exchange from the years 2003 to 2012. The authors use an event study methodology and the Capital Asset Pricing Model to determine if there was an announcement effect when a share repurchase announcement is made. The analyses reveal that consistent with signalling theory and the announcement effect, share repurchase announcements are associated with positive abnormal returns. The average abnormal return and cumulative average abnormal return noted was 0.46% and 3.81%, respectively, for the event period (t-20, t+20). There was an observable trend of declining share prices before the share repurchase announcement. The authors also found no significant evidence that repurchasing firms have market timing ability when executing a share repurchase announcement. From a value investor’s perspective, a share repurchase program conveys a very strong signal of a healthy company

Download Full-text

Anomalous Price Behaviour around Open Market Stock Repurchase Announcements in India

Vikalpa The Journal for Decision Makers ◽

10.1177/0256090915611773 ◽

2015 ◽

Vol 40 (4) ◽

pp. 435-443 ◽

Cited By ~ 2

Author(s):

Chanchal Chatterjee ◽

Paromita Dutta

Keyword(s):

Stock Returns ◽

Abnormal Returns ◽

Market Model ◽

Share Repurchase ◽

Open Market ◽

Announcement Date ◽

Event Date ◽

Abnormal Stock Returns ◽

Repurchase Announcements ◽

The Impact

Executive SummaryThis article examines the impact of open market share repurchase announcements on stock returns in the Bombay Stock Exchange (BSE). The main objective is to examine whether share repurchase announcements under the open market route have any significant impact on the returns of the stocks traded in the BSE. The article covers the period from 2009 to 2013. For sample selection, two criteria were used: first, the firm should have been listed in the BSE for at least 28 trading days before the repurchase announcement date, and second, the firm should have all relevant data required by this study. A total of 95 repurchase announcements fulfilled these criteria. The analysis period extended from –28 to +28 trading days relative to the repurchase announcement date ( t = 0). The findings of the study will help us to understand how the market responds to share repurchase announcements in India and whether a firm actually benefits by repurchasing its own shares from the market.This study uses a standard event methodology based on an ordinary least squares market model with the aim of finding out whether repurchase announcements generate any abnormal return around the repurchase announcement date. While applying the market model for estimating the abnormal returns, the regression is estimated based on the stock return of the firm and market return of the previous 120 trading days. So, here the estimation window takes into account 120 observations. Using this, the expected returns are generated and then the abnormal returns are derived for the event window, 28 days prior to the event date and 28 days after the event date.The findings of the study indicate that share repurchase announcements do not necessarily generate abnormal stock returns in the Indian equity market unlike developed economies like the US, Canada, and Australia. The whole sample is further divided into various subsamples on the basis of firm size and size of repurchase. The subsample analyses reveal that smaller firms do not necessarily experience higher abnormal stock returns following repurchase announcements than that of the larger firms. The findings weakly support the view that larger repurchase size generates greater abnormal stock returns than the smaller ones.

Download Full-text

The post-repurchase announcement drift: an anomaly in disguise?

Managerial Finance ◽

10.1108/mf-02-2014-0038 ◽

2015 ◽

Vol 41 (2) ◽

pp. 205-224 ◽

Cited By ~ 7

Author(s):

Thanh T. Nguyen ◽

Ninon K. Sutton ◽

Dung (June) Pham

Keyword(s):

Stock Price ◽

Abnormal Returns ◽

Open Market ◽

Calendar Time ◽

Stock Repurchase ◽

Earnings Announcement ◽

Content Type ◽

Post Earnings Announcement Drift ◽

Earnings Performance ◽

Repurchase Announcements

Purpose – The purpose of this paper is to reexamine the stock price drifts after open-market stock repurchase announcements by differentiating actual repurchases from repurchase announcements and by controlling for the repurchasing firms’ earnings improvement in the announcement year relative to the prior year. Design/methodology/approach – The authors use the calendar-time method and matching method based on different criteria to calculate the post-announcement abnormal returns. Findings – The results show that only firms actually repurchasing their shares exhibit a positive post-announcement drift. More importantly, the authors find that these repurchasing firms have the same post-announcement drift as their matching firms that have similar size and earnings performance but do not repurchase. This supports the argument that the post-repurchase announcement drift found in previous studies is not a distinct anomaly but the post-earnings announcement drift in disguise. Social implications – The post-repurchase announcement drift found in previous studies is the post-earnings announcement drift in disguise. Originality/value – The study shows that because high earnings performance positively relates to real repurchase activities, controlling for earnings performance in examining whether a drift occurs after repurchase announcements.

Download Full-text

An Empirical Study of the Differential Market Reaction to Open-Market Stock Repurchase Announcements

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v18i4.2128 ◽

2011 ◽

Vol 18 (4) ◽

Author(s):

Zhenhu Jin

Keyword(s):

Stock Price ◽

Market Reaction ◽

Abnormal Returns ◽

Open Market ◽

Costs And Benefits ◽

Stock Repurchase ◽

Price Reaction ◽

Stock Price Reaction ◽

Specific Factors ◽

Repurchase Announcements

Significant positive stock price reaction to stock repurchase announcements has been well documented in the finance literature.  Most studies on repurchase focus on the average positive reaction; however, 30 percent of the repurchasing firms experience negative abnormal returns at announcement.  This study examines the apparent heterogeneity in the stock price reaction to stock repurchase.  The results show that the market reaction to repurchase announcements is determined by firm specific factors and is based on the overall costs and benefits analysis by the market of the stock repurchase program.  The results are consistent with conventional signaling models and agency theories.

Download Full-text

Testing share repurchases hypotheses: a conditional study

Corporate Ownership and Control ◽

10.22495/cocv5i4c4p1 ◽

2008 ◽

Vol 5 (4) ◽

pp. 420-431 ◽

Cited By ~ 2

Author(s):

Stefano Bonini ◽

Vincenzo Capizzi ◽

Maurizio Lombardi ◽

Roberto Mazzei

Keyword(s):

Stock Exchange ◽

Abnormal Returns ◽

Equal Treatment ◽

Share Repurchases ◽

Clear Understanding ◽

Share Repurchase ◽

Cumulative Abnormal Returns ◽

Corporate Decisions ◽

Repurchase Announcements ◽

The Impact

In the past 20 years share buybacks have experienced a tremendous growth. Yet, we still don’t have a clear understanding of this phenomenon, also because of limited samples available on these corporate decisions. This paper aims at testing the main hypotheses on buybacks drivers and effects by analyzing the impact of share repurchase announcements on the performance of companies listed on the Italian Stock Exchange, conditional and unconditional on the 1998 introduction of the Capital Market Reform. Our findings show that, by imposing more stringent rules on transparency and equal treatment of shareholders in buybacks operations, the change in regulation has increased the volume and frequency of share repurchases announcements. Analogously, the number of repurchasing companies has soared as well. Finally, market reaction to buybacks, as measured by abnormal returns and cumulative abnormal returns has consistently reversed switching from negative to positive long term CARs

Download Full-text

Market underreaction to open market share repurchases on the JSE

South African Journal of Business Management ◽

10.4102/sajbm.v45i4.141 ◽

2014 ◽

Vol 45 (4) ◽

pp. 59-69 ◽

Cited By ~ 3

Author(s):

N. Wesson ◽

C. Muller ◽

M. Ward

Keyword(s):

South African ◽

Market Share ◽

Abnormal Returns ◽

Share Repurchases ◽

Share Repurchase ◽

Open Market ◽

Repurchase Announcements ◽

Long Term Performance ◽

Term Performance

This study examined the long-term performance of open market share repurchase announcements made by companies listed on the JSE during their reporting periods including 1 July 1999 to 2009. A total of 195 open market share repurchase announcements were identified. A maximum outperformance of about 35% was found on day t+550 (about two years subsequent to the announcement). After splitting the sample into 'value' (low P/E ratio) and 'growth' shares (high P/E ratio), it was found that the outperformance was almost entirely confined to the value portfolio, reaching a maximum of about 80% by day t+630 (about two-and-a-halfyears subsequent to the announcement). This study applied a more robust research methodology than used in earlier South African research on this topic; it also used an improveddataset and extended the research period, compared to other research. The results of this study showed much higher positive abnormal returns than were found in earlier international and South African studies. Investors should takeadvantage of the informational value of open market repurchase announcements and the related significant abnormal returns to be earned.

Download Full-text