Anomalous Price Behaviour around Open Market Stock Repurchase Announcements in India

Abstract

Executive Summary This 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.

Are Buybacks Good for Long-Term Shareholder Value? Evidence from Buybacks around the World

“…Italy Lee et al (2010) 1.93% (−1, +1) 51 1990-2005 India Bhargava and Agrawal (2015) 1.00% (−1, +1) 42 2010-2014 Chatterjee and Dutta (2015) 1.81% (−1, +1) 95 2009-2013 Japan Zhang (2002) 6.00% (−1, +2) 39 1995-1999 Hatakeda and Isagawa (2004) 2.43% (−1, +1) 452 1995-1998 Korea Jung, Lee, and Thornton (2005) United Kingdom Rau and Vermaelen (2002) 1.10% (−5, +5) 246 1985-2000 Oswald and Young (2004) 1.40% (−1, +1) 266 1995-2000 Lee et al (2010) 0.80% (−1, +1) 126 1990-2005 Crawford and Wang (2012) 1.33% (−2, +2) 468 1999-2004 Andriosopoulos and Lasfer (2015) 1.68% (−1, +1) 513 [1997][1998][1999][2000][2001][2002][2003][2004][2005][2006] (continued on next page) returns, two report significant negative excess returns, and the remaining five report insignificant long-term returns. The lack of consistency may well be a result of small sample sizes, different periods and investment horizons, different methodologies to estimate expected returns, and the fact that some studies center on actual repurchases rather than buyback authorization announcements.…”

“…Italy Lee et al (2010) 1.93% (−1, +1) 1990-2005 India Bhargava and Agrawal (2015) 1.00% (−1, +1) 2010-2014 Chatterjee and Dutta (2015) 1.81% (−1, +1) 2009-2013 Japan Zhang (2002) 6.00% (−1, +2) 1995-1999 Hatakeda and Isagawa (2004) 2.43% (−1, +1) 1995-1998 Liao, Ke, and Hu (2005) 2.90% (−1, +1) 2000-2001 Wang, Lin, Fung, and Chen (2013) 1.91% (−1, +2) 3,022 2000-2010 Thailand Nittayagasetwat and Nittayagasetwat (2013) 2.82% (−1, +1)…”

Short-Term Return Impact of Share Repurchase Announcements

“…Whereas Isa and Lee (2014), in the conclusion of their study conducted for Malaysia; for the event window (+2, +20) where the post-announcement period was considered, it was indicated that the CAAR value was calculated as 1.6%. Chatterjee and Dutta (2015) for India, in the (0, +20) event window, CAAR value was found to be 0.3%. Furthermore, when the combined event windows covering the days before and after the event are examined; it was determined that the highest CAAR value was calculated in the event window (-1, +1) with a rate of 3,6%.…”

“…While Hatakeda and Isagawa (2004) reported that the negative CAAR value in the period prior to the announcement date was calculated as -4.82% for Japan, Seifert and Stehle (2005) on the other hand, have addressed the period before the announcement date as (-25, -1) for Germany and expressed that the calculated CAAR value for this period was -6.43%. Moreover, Isa and Lee (2014), Chatterjee and Dutta (2015) and Gan, Bian, Wu and Cohen (2017), for Malaysia, India and China, respectively, put forward that positive CAAR values had been calculated in the (-20, -1) event window prior to the announcement date.…”

Pengaruh Konservatisme, Dividend Payout Ratio, Tingkat Likuiditas Aset, dan Leverage Terhadap Harga Saham Pada Perusahaan Manufaktur

“…Capital gain adalah keuntungan dari hasil menjual atau membeli saham berupa kelebihan nilai jual dari nila beli saham (Falani, 2013). Pembelian kembali saham diyakini menyuntikkan beberapa pengaruh ke dalam harga saham sejak harga beli kembali ditetapkan pada tingkat yang lebih tinggi dari harga pasar yang berlaku, dengan demikian dianggap sebagai langkah penting untuk menyelamatkan pasar saham (Chatterjee, 2015).…”