Share repurchases, signaling effect and implications for corporate governance: Evidence from India

Reddy, Kotapati Srinivasa and Nangia, Vinay Kumar and Agrawal, Rajat (2013): Share repurchases, signaling effect and implications for corporate governance: Evidence from India. Published in: Asia-Pacific Journal of Management Research and Innovation , Vol. 9, No. 1 (2013): pp. 107-124.

Abstract

It is worth mentioning that a great deal of financial liberalization, privatization and internationalization policies in emerging economies have significantly increased the corporate restructuring activities like mergers, acquisitions, share repurchases, and stock splits, among others. Indeed, the activity that is investigated in this paper is ‘share repurchases’ and its effect on stock returns and price-to-earnings (P/E) ratio. More deeply, this paper will answer the research question–does a share repurchase offer abnormal returns around the announcement? Thus, it is performed in one of the Asian emerging markets–India. To do so, we use event-study method to examine abnormal returns and P/E signaling around the announcement of 64 share repurchases, announced during 2008-2009. It is found that stock performance does not adequate, and notices lower as well as negative earnings during post-buyback period. Briefly, we conclude that share repurchases assure short-term returns, and observe lower P/E compared to pre-buyback period. In addition, we show some interesting results that derived from industrial and services sectors. The outcome of this paper would help financial analysts, financial advisors, corporate enterprises and regulatory bodies in designing policies on earnings distribution, managerial incentives, takeovers, and so forth of regulatory aspects.

• Item Type: MPRA Paper
• Language: English
• Keywords: Capital market studies; Corporate governance; Event-study; India; Price-to-earnings; Signaling effect; Share buybacks; Share repurchases; Stock returns; Undervaluation
• Subjects: G - Financial Economics > G1 - General Financial Markets; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation; G - Financial Economics > G2 - Financial Institutions and Services; G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking ; Venture Capital ; Brokerage ; Ratings and Ratings Agencies; G - Financial Economics > G3 - Corporate Finance and Governance; G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing

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