IDEAS home Printed from https://ideas.repec.org/p/iim/iimawp/12146.html
   My bibliography  Save this paper

Market Timing Ability of Indian Firms in Open Market Repurchases

Author

Listed:
  • Agarwalla, Sobhesh Kumar
  • Jacob, Joshy
  • Vasudevan, Ellapulli

Abstract

The paper examines the market timing ability of Indian fi rms engaged in open market repur- chases. The study is primarily motivated by the unique disclosure feature of repurchases in India, where the disclosures are far more frequent than in any other market. We find that the repurchasing firms in India are able accumulate shares at favorable prices similar to the US market. However, the cost savings do not translate into signifi cant wealth creation for the insiders as indicated by the short-run and long-run abnormal returns. This is contrary to the evidence from markets like the US. Further, the cross-sectional variations in the cost savings from repurchase execution in India are explained by the overall market returns and not by firm characteristics. These fi ndings contrast with that of US, where the firm characteristics signi ficantly explain the cross-sectional variation in the savings measure. It appears that the more frequent disclosure of repurchase activity in India cripples the market timing ability by reducing the information asymmetry between the firm and the outsiders. This conclusion is further supported by the irrelevance of the past or concurrent stock returns in explaining the time variation in the repurchase activity of fi rms.

Suggested Citation

  • Agarwalla, Sobhesh Kumar & Jacob, Joshy & Vasudevan, Ellapulli, 2013. "Market Timing Ability of Indian Firms in Open Market Repurchases," IIMA Working Papers WP2013-11-10, Indian Institute of Management Ahmedabad, Research and Publication Department.
  • Handle: RePEc:iim:iimawp:12146
    as

    Download full text from publisher

    File URL: https://web.iima.ac.in/assets/snippets/workingpaperpdf/9782541062013-11-10.pdf
    File Function: English Version
    Download Restriction: no

    References listed on IDEAS

    as
    1. 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.
    2. Agarwalla, Sobhesh Kumar & Jacob, Joshy & Varma, Jayanth R., 2013. "Four Factor Model in Indian Equities Market," IIMA Working Papers WP2013-09-05, Indian Institute of Management Ahmedabad, Research and Publication Department.
    3. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    4. Gustavo Grullon & Roni Michaely, 2002. "Dividends, Share Repurchases, and the Substitution Hypothesis," Journal of Finance, American Finance Association, vol. 57(4), pages 1649-1684, August.
    5. David Ikenberry & Josef Lakonishok & Theo Vermaelen, 2000. "Stock Repurchases in Canada: Performance and Strategic Trading," Journal of Finance, American Finance Association, vol. 55(5), pages 2373-2397, October.
    6. Dann, Larry Y., 1981. "Common stock repurchases : An analysis of returns to bondholders and stockholders," Journal of Financial Economics, Elsevier, vol. 9(2), pages 113-138, June.
    7. Ginglinger, Edith & Hamon, Jacques, 2007. "Actual share repurchases, timing and liquidity," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 915-938, March.
    8. Urs Peyer, 2009. "The Nature and Persistence of Buyback Anomalies," Review of Financial Studies, Society for Financial Studies, vol. 22(4), pages 1693-1745, April.
    9. Douglas O. Cook, 2004. "On the Timing and Execution of Open Market Repurchases," Review of Financial Studies, Society for Financial Studies, vol. 17(2), pages 463-498.
    10. Barclay, Michael J. & Smith, Clifford Jr., 1988. "Corporate payout policy : Cash Dividends versus Open-Market Repurchases," Journal of Financial Economics, Elsevier, vol. 22(1), pages 61-82, October.
    11. Chan, Konan & Ikenberry, David L. & Lee, Inmoo, 2007. "Do managers time the market? Evidence from open-market share repurchases," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2673-2694, September.
    12. Eleswarapu, Venkat R. & Thompson, Rex & Venkataraman, Kumar, 2004. "The Impact of Regulation Fair Disclosure: Trading Costs and Information Asymmetry," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(02), pages 209-225, June.
    13. Paul Schultz, 2003. "Pseudo Market Timing and the Long-Run Underperformance of IPOs," Journal of Finance, American Finance Association, vol. 58(2), pages 483-518, April.
    14. repec:dau:papers:123456789/1748 is not listed on IDEAS
    15. Douglas O. Cook & Laurie Krigman & J. Chris Leach, 2003. "An Analysis of SEC Guidelines for Executing Open Market Repurchases," The Journal of Business, University of Chicago Press, vol. 76(2), pages 289-316, April.
    16. Gustavo Grullon & Roni Michaely, 2004. "The Information Content of Share Repurchase Programs," Journal of Finance, American Finance Association, vol. 59(2), pages 651-680, April.
    17. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
    18. De Cesari, Amedeo & Espenlaub, Susanne & Khurshed, Arif & Simkovic, Michael, 2012. "The effects of ownership and stock liquidity on the timing of repurchase transactions," Journal of Corporate Finance, Elsevier, vol. 18(5), pages 1023-1050.
    19. Healy, Paul M. & Palepu, Krishna G., 2001. "Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 405-440, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iim:iimawp:12146. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/eciimin.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.