Impact of Buyback of Shares on Firm Value: An Empirical Evidence from India

Document Type: Research Paper

Authors

1 University Business School Maharaja Ranjit Singh Punjab Technical University, Bathinda,Punjab, India

2 University School of Business Studies, Guru Kashi Campus, Talwandi Sabo, Punjabi University Patiala, Punjab, India

3 L M Thapar School of Management, TIET (Deemed -to –be-University) Patiala, Punjab, India

Abstract

The present study examines the impact of capital employed in buyback of shares on firm value for 180 firms listed in the Bombay Stock Exchange of India. The issue of buyback of shares in the period from 2006 to 2016 was examined. The firm value is measured by a proxy, enterprise value, as a substitute of share price. The results suggest that the firm value differs from pre and post buyback of shares. The findings of this study further imply that the proportion of paid-up equity capital employed by companies for buyback of shares does not have any significant effect on firm value.

Keywords

Main Subjects


Article Title [Persian]

تاثیر بازخرید سهام بر ارزش شرکت: شواهد تجربی از هند

Authors [Persian]

  • پریتبال سینگ بولار 1
  • دایل بتناگر 2
  • پرادیپ گوپتا 3
1 گروه مطالعات علوم انسانی و مدیریت، دانشکده مهندسی و تکنولوژی، پردیس جیان زیل سیانگ،.دانشگاه فنی مهاراج رنجیت سینگ پنچاب، پنجاب، هند
2 دانشکده مطالعات تجاری، پردیس گورو کاشی، دانشگاه پنجابی پاتیلا، پنجاب، هند.
3 دانشکده مدیریت تاپار، پردیس دره باسی، دانشگاه پاتیلا، پنجاب، هند
Abstract [Persian]

پژوهش حاضر تاثیر سرمایه به­کار گرفته شده برای بازخرید سهام بر ارزش شرکت را در میان 180 شرکت موجود در بورس اوراق بهادار بمبئی هند و برای دوره زمانی بین سالهای 2006 تا 2016  مورد بررسی قرار داده است. از ارزش بازار سهام شرکت به عنوان معیاری برای سنجش ارزش شرکت، Enterprise Value، استفاده شده است. نتایج پژوهش نشان می دهد که ارزش شرکت  قبل و پس از بازخرید سهام متفاوت است. یافته­های تحقیق همچنین حاکی از آن است که سرمایه سهام بکار گرقته شده برای باز خرید سهام تاثیر معنی داری بر ارزش شرکت ندارد.

Keywords [Persian]

  • بازخرید سهام
  • ارزش شرکت
  • سرمایه به‌کار گرفته شده
Bartov, E. (1991). Open market share buyback as signals for earnings and risk changes. Journal of Accounting and Economics, 14, 275-294.

Brav, A., Graham, J. R., Harvey, C. R., & Michaely, R. (2005). Payout policy in the 21st

Century. Journal of financial economics, 77(3), 483-527.

Chatterjee, C., & Rakshit, D (2012). An empirical investigation of share repurchase in India South-Asian Academic Research Journal, 2(1), 28-65.

Comment, R., & Jarrell, G. (1991). The relative signalling power of Dutch-auction and fixed-price self-tender offers and open-market share repurchases. Journal of Finance, 46(4),

1234-1271.

De Cesari, A., Espenlaub, S., & Khurshed, A. (2011). Stock repurchases and treasury share

Sales: Do they stabilize price and enhance liquidity? Journal of Corporate Finance, 17(5), 1558-1579.

Dittmar, A. K. (2000). Why do firms repurchase stock? The Journal of Business, 73(3), 331-

355.

Doan, D. H., Yap, C. J., & Gannon, G. (2012). Takeover deterrent effect of on market share buyback in Australia. Australian Accounting Business and Finance Journal, 5(4), 65-84.

Fama, E. and French, K. (2001). Disappearing dividends: Changing firms characteristics or

lower propensity to pay? Journal of Financial Economics, 60(1), 3-43.

Firth, M., & Yeung, C. S. F. (2005). An empirical investigation of share buybacks in Hong

Kong. Journal of Emerging Market Finance, 4(3), 207-225.

Ginglinger, E., & Hamon, J. (2007). Actual share repurchases timing and liquidity. Journal of

Banking and Finance, 31(3), 915-938.

Grullon, G., & Michaely, R. (2004). The information content of share repurchase program.

Journal of Finance, 59(2), 651-680.

Grullon, G., & Ikenberry, D. (2000). What do we know about stock repurchases? Journal

of Applied Corporate Finance, 13(1),  31-51.

Hatakeda, T., & Isagawa, N. (2004). Stock price behavior surrounding stock repurchase

Announcements: Evidence from Japan. Pacific Basin Finance Journal, 12(3), 271-290.

Hong, H. G., Wang, J., & Yu, J. (2008). Firms as buyers of last resort. Journal of Financial

Economic, 88(1), 114-119.

Huang, H., & Zhou, Z. G. (2007). Stock repurchase and the role of signalling: A comparative

Analysis between US and China. Journal of Modern Accounting and Auditing, 3(2), 56-62.

Isa, M., Ghani, Z., & Lee, S. P. (2011). Market reaction to actual share repurchase in

Malaysia. Asian Journal of Business and Accounting, 4(2), 27-46.

Liao, T. L., Ke, M.C., & Yu, H.T. (2005). Anomalous price behaviour around stock repurchases on the Taiwan stock exchange. Applied Economics Letters, 12(1), 29-39.

Lim, E. H., & Bacha, O. I. (2002). Price reaction to stock repurchases: Evidence from the

KLSE. Capital Market Review, 10(1), 139-177.

McNally, W. J., Smith, B. F., & Barnes, T. (2006).The price impacts of open market repurchase trades. Journal of Business Finance and Accounting, 33(5&6), 735-752.

Mishra, A. K. (2005). An empirical analysis of share buybacks in India. The ICFAI Journal of Applied Finance, 5-24

SEBI: Buy-Back of Securities Amendment Regulations. (2013). Available at the website:

Rajlaxmi, V. (2013, February). Share Buybacks – An Analytical Study of Announcement Effect on Stock

Prices in India, Indian Journal of Applied Research, 3(2), 241-243.

Ramesh, B., & Rane, P. (2013). Shareholder value creation through buyback of equity. Indian

Journal of Accounting, XLIV(2), 1-5.

Stephens, C. and Weisbach M (1998). Actual Share Reaquisition in open market buyback

programmes. Journal of Finance. 53, 313-333.

Thirumalvalavan, P., & Sunitha, K. (2006). Share price behaviour around buyback and dividend

announcements in India. Proceedings from 9th Capital Markets Conference of Indian Institute of Capital Markets.

Wahid, A., & Dol, A. H. (2013). Measuring the motivating factors for share buyback:

Evidence from Malaysian companies. Online Journal of Social Sciences Research, 2(2). 35-50.

Zhang, H. (2005). Share price performance following actual share repurchases. Journal of

Banking and Finance, 29(7), 1887-1901.