Corporate Restructuring through Share buybacks: An Indian Experience

Abstract

The share buyback regulation was enacted by the Government of India (GOI) in 1998 with an objective to revive the fast declining Indian capital markets and protect the interest of the investors and companies from hostile takeover bids [1]. Until 2004, the buyback process did not gain any momentum, but the year 2004 witnessed a series of share buyback announcements and this process has continued until the present day. There is much discussion in media and financial circles about this issue, but little effort was made to know the reasons behind such buyback decisions. The present study has analyzed the corporate actions such as the "free cash" policy, dividend distribution, change in capital structure and lower profitability while deciding interpreting the intent behind these 'tender offer buyback' and 'open market buyback' offers between January 2004 to December 2017.The study uses a sample of ninety open market repurchasing companies with a similar number of non-repurchasing companies and of fifty-four tender buyback companies with fifty-four non-repurchasing companies in the same industry having similar market capitalization and listed on Bombay stock exchange (BSE). To investigate the drivers of open market buyback and tender offer buyback in India, a Tobit regression analysis has been used. The study concludes that 'Tender offer buyback' is used more predominantly for capital structure corrections, while in the case of open market repurchase in India, dividend substitution and capital structure correction act as the key drivers. Whether 'size of the firms' make any significant difference or not, study revealed positive impact on the motive for buybacks. A hostile takeover is a corporate phenomenon that entails the acquisition of a certain block of equity shares of a company giving the acquirer a larger stake in the company than its promoters. That enables the acquiring company to exercise control over the affairs of the company.

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“…1000 notes in order to lessen corruption. Varma, Singh, and Munjal (2018) looked at a 1998 change in legislation changing share buybacks and the influence of this change (particularly post 2004) on Indian corporate structure and takeover activity. Finally, Murthy and Gambhir (2018) explored the pollution haven hypothesis (PHH) as it relates to India.…”

Faktor-Faktor yang Mempengaruhi Share Repurchase Decisions Pada Perusahaan yang Terdaftar di Bursa Efek Indonesia

“…Laba operasi atau laba usaha atau laba sebelum beban bunga dan pajak adalah laba yang diperoleh perusahaan setelah dikurangi dengan biaya-biaya operasional perusahaan dalam menjalankan bisnisnya. Beberapa penelitian menemukan adanya pengaruh negatif laba operasi (earning before interest and taxes) terhadap share repurchase decisions (Latif, Mohd, & Kamardin, 2018;Varma, Singh, & Munjal, 2018;Lee & Suh, 2011;Hillert et al, 2014). Hal tersebut menunjukkan bahwa perusahaan membeli kembali saham bergantung pada hasil kinerja operasional perusahaan.…”

“…Hasil penelitian ini mendukung penelitian yang menemukan bahwa peningkatan pada depresiasi perusahaan bukanlah faktor pendorong perusahaan untuk melakukan pembelian kembali saham (Abraham et al, 2018;Boudry, Kallberg, & Liu, 2013;Cheng et al, 2015). Nilai koefisien dividen sebesar -0,000113 dan nilai probabilita sebesar 0,8601 menghasilkan kesimpulan tidak ada pengaruh dividen terhadap share repurchase dan sejalan dengan penelitian sebelumnya (Cheng et al, 2015;Sonika et al, 2015;Varma et al, 2018;Yarram, 2014). Pembagian dividen bukan merupakan faktor pendorong perusahaan dalam melakukan pembelian kembali saham.…”

Determinants of payout choice between open market repurchase, tender offer repurchase and special dividends

“…A study by Hyderabad (2009), Chatterjee and Mukherjee (2015) looks into the price behaviors following share buyback in India. Varma et al (2018) have analyzed free cash flow, capital structure, profitability as the choice for open market repurchase and tender offer repurchase for 54 tender offer repurchase and 90 repurchase firms using Tobit regression. The researchers find a tender offer is enacted for capital structure correction and open market repurchase for dividend substitution.…”