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An Empirical Analysis Of Share Buybacks In India

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  • asim mishra

    (Indian Institute of Management, Lucknow, India)

Abstract

Share buybacks have become a common event in the financial markets worldwide. In a share buyback programme, the company distributes the excess cash flow among the shareholders by way of repurchasing its own shares, generally at a premium. Among the various reasons for doing so, the most prominent is the fact that the company wants to indicate to the share holders that it has huge confidence in itself. In India share buybacks were introduced in 1998 and has received attention of all major companies. Since then there has been a spate of announcement of share buybacks. This paper examines empirically the announcement period price reaction and whether management is acting in the best interest of non-tendering shareholders when it engages in targeted share buyback. An exhaustive list of all the financial parameters was considered for the purpose of analysis and the data was collected through online databases. A trend analysis was performed on various parameters like share prices of these companies during and post buyback period. Various performance measures were also used to draw conclusion regarding their trends from pre buyback to post buyback period. The study established that for the Indian corporate, the long term advantages of share buyback are not clear. Buyback process is generally used to improve the shareholding of promoters of the company, and with a view to impart short term gains for the investors. The study also points out that buyback norms should be made more stringent for Indian context, if the companies are to have a long-term view. In the end, the study lays down possible directions in which further research could be done on this topic.

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File URL: http://128.118.178.162/eps/fin/papers/0507/0507001.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0507001.

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Length: 25 pages
Date of creation: 04 Jul 2005
Date of revision:
Handle: RePEc:wpa:wuwpfi:0507001

Note: Type of Document - pdf; pages: 25
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Web page: http://128.118.178.162

Related research

Keywords: India; Share buybacks; Repurchase;

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  1. Laurie Simon Bagwell & John B. Shoven, 1988. "Share Repurchases and Acquisitions: An Analysis of Which Firms Participate," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 191-220 National Bureau of Economic Research, Inc.
  2. Ikenberry, David & Lakonishok, Josef & Vermaelen, Theo, 1995. "Market underreaction to open market share repurchases," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 181-208.
  3. Miller, Merton H & Rock, Kevin, 1985. " Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-51, September.
  4. Barber, Brad M. & Lyon, John D., 1996. "Detecting abnormal operating performance: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 41(3), pages 359-399, July.
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