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.

Impact Of Stock Repurchase Announcement On Indonesia Stock Market Reaction 2015-2019

The negative global sentiment, Corona Virus Disease 2019 (COVID-19) caused several listed companies in Indonesia to conduct a stock repurchase in the hope of maintaining and increasing the company's stock price. The research objective is to analyze the effect of stock repurchase announcements on market reactions that are reflected in abnormal return and trading volume activity in 2015-2019 as a guide for companies to make decisions in the present and the future regarding the same issue. This research uses a sample of 64 companies listed on the Indonesia Stock Exchange (IDX) during the observation period. This study uses the event study method with the significance of the hypothesis test of 0.05. The results showed that there is no significant difference between before and after stock repurchase announcements for both variables. This is caused by the presence of negative sentiment throughout the observation period such as the Brexit tragedy, elections in the US won by Donald Trump, and the issue of the trade war by the US-China, this makes the market does not yet have full trust in the Indonesian capital market. Based on the results of the study, it can be concluded that the stock repurchase announcement did not have a significant effect on the market reaction.

What Drives the Declining Wealth Effect of Subsequent Share Repurchase Announcements?

Recent academic studies document that open market share repurchase announcements in the United States generate significantly lower returns than those reported in earlier studies. We find that the lower announcement return is associated with an increasing number of subsequent announcements in the more recent periods. Although the announcement period return from the initial announcement is positive, subsequent announcement returns are significantly decreasing. Further, we find that the decreasing returns of subsequent announcements are attributed to firms with negative past repurchase announcement returns. Our multivariate regression test results are consistent with the notion that the decreasing subsequent repurchase announcement returns are driven by hubris-endowed managers.

Testing the Real Option Hypothesis on the Declining Open-Market Repurchase Announcement Returns

Recent studies report that open-market repurchase announcements have become less attractive to stock investors. This study documents that lower announcement returns are attributed to subsequent repurchase announcements, which have increased in number in recent years. Using the real-option-to-delay framework proposed by Ikenberry, D and T Vermaelen (1996). The option to repurchase stock. Financial Management, 25, 9–24, this study finds evidence consistent with decreasing value of the option to repurchase shares prior to subsequent open-market repurchase announcements. This explains the decreasing market reactions to such announcements.

Payout Policy Trade-Offs and the Rise of 10b5-1 Preset Repurchase Plans

We are the first to document and study the use of Rule 10b5-1 preset repurchase plans. Though the rule’s original intent was to clarify conditions for enforcing insider trading laws, generally thought to apply to individuals classified as firm insiders, we find strong use of the rule at the firm level to repurchase company stock. We exploit this new and widespread form of payout to examine an issue at the core of payout decisions—the trade-off between commitment and financial flexibility. Relative to open market repurchases, preset plans provide an expanded repurchase window and increased legal cover, albeit at the cost of reducing repurchase flexibility and the option to time repurchases. These costs and benefits are significantly associated with Rule 10b5-1 adoption: Firms with alternative sources of financial flexibility are more likely to precommit to a repurchase plan, as are firms with a history of poor repurchase timing and firms constrained by blackout windows. Consistent with preset plans signaling commitment, Rule 10b5-1 repurchase announcements are associated with greater and faster completion rates, with more positive market reactions, and with more dividend substitution than open market repurchases. Lastly, we find that preset repurchase plans represent a unique payout tool whose introduction encouraged a different set of firms to buy back stock and significantly altered the payout landscape. This paper was accepted by David Simchi-Levi, Editor-in-Chief.

Open Market Share Repurchases and Earnings Management

In this study we examine earnings management around open market share repurchases. We examine two hypotheses: managerial opportunism and market response, both of which predict that managers will manage earnings down prior to an open market repurchase. Using 2,939 repurchase announcements during 1980- 1998 we find evidence that managers do manage earnings down before share repurchases. We also find that the market does not identify the earnings manipulation when the repurchase is announced, and that discretionary accruals can explain a significant part of long-term positive returns following repurchases. Altogether the evidence is consistent with the managerial opportunism hypothesis. Further investigation indicates that managers with higher ownership in the firm are more likely to manage earnings down.