An empirical study on the share repurchases in India

Abstract

In the recent times, Share Repurchase has become a very popular event in the Indian financial market. In the buyback program, the company distributes the cash among the investors by repurchasing its own shares generally at a premium. By doing so they try to benefit the investors, both the ones who are tendering their shares and also the ones who are retaining it. For the ones who are tendering it, they get a premium over the market price of the share. For the ones who are retaining it, they get the enhanced shareholder value. Apart from all this, it is a way for the management to signal confidence in the Company. This study examines empirically, the effect of repurchase announcement on the stock prices, risk adjusted rate of return for a sample of companies that had announced buyback post 2007. The study tried to do this analysis on three specific events Board approval date, Public announcement date, and Share buyback start date. The study tried to find any trends in the stock prices (and returns) during these events. The study established that the cumulative abnormal returns indicate significant positive reaction on the announcement of the share buyback activity in the short run around the event dates.