Market Reaction to Buyback Announcement: Evidences from Select Indian Manufacturing Companies

Abstract

Buyback of shares is the company's strategic move to decrease the outstanding shares in the market by buying its own shares from their own shareholders. This study is an effort to analyse the effect of share buyback announcement by manufacturing companies in India, considering 182 events from both the tender offer and open market method from financial year 2000-01 to 2018-19. The event study methodology from the market model has been considered to attain the Abnormal returns (AR). Stock return and market return both are calculated from the daily market data of BSE. BSE S&P SENSEX is considered as benchmark index for the calculation of market return. The market reaction to buyback offers are positive in India according to most of the previous studies, the same is observed even in this study on select manufacturing companies.

Impact of Hindenburg Research Report on Stock Price of LIC India: An Event Study Approach

“…The event study methodology is utilized to investigate the impact of an event on stock prices, with the dependent variable being the stock prices themselves (Lodha & Kumawat, 2022). Several prior studies have utilized this methodology in the Indian context to understand the speed at which the market absorbs new information related to various events (Bhargava & Agrawal, 2015;Bhullar et al, 2018;Dsouza, 2016;Jain & A. Sunderman, 2014;Lalwani et al, 2019;Lodha & Kumawat, 2022;Rohit et al, 2016;Sharma & Verma, 2020;Sivashanmugam & Sowmya, 2019). Using the event study methodology, Lodha and Kumawat (2022) conducted a study on the effects of Covid-19 lockdown announcements on the banking sector during different phases of the lockdown.…”

“…The study found that the Indian stock market fails to absorb publicly available information, and investors can forecast future returns based on new information flow. Sivashanmugam and Sowmya (2019) examined the effect of share buyback announcements by manufacturing companies in India, using the event study methodology to obtain Abnormal Returns (AR) from the market model. The study found that the market reaction to buyback offers was positive for select manufacturing companies.…”

Reaksi pasar modal terhadap kebijakan buyback saham tanpa persetujuan RUPS

“…Periode peristiwa dalam penelitian ini adalah 21 hari. Penentuan periode ini sesuai dengan penelitian terdahulu oleh Yulita (2017), Sivashanmugam & Sowmya (2019), serta Wibowo & Sukmaningrum (2020). Periode tersebut diharapkan mewakili reaksi pasar modal (abnormal return) terhadap peristiwa yang diteliti karena dalam periode tersebut telah terdapat sejumlah perusahaan yang mengumumkan keterbukaan informasi akan melakukan buyback.…”

“…Lastly, with respect to managerial market timing ability we could not observe that buybacks are following a period of share price underperformance, concluding that managers are not able to time the implementation of buyback programs (Gupta and Wagner, 2018 menemukan abnormal return yang signifikan dan positif. Sivashanmugam & Sowmya (2019) mendapatkan hasil bahwa secara kumulatif, abnormal return bernilai lebih rendah daripada hari pengumuman, dan abnormal return bernilai positif signifikan pada periode sebelum pengumuman. Niu (2015) juga menemukan bahwa rerata positif abnormal return pada waktu pengumuman pembelian kembali saham di masa normal atau saat krisis, dan meningkat secara signifikan ketika krisis.…”