“The impact of the share buyback process on financial performance: An economic and accounting perspective. Evidence from Egypt”

This study aims to investigate the impact of the share buyback process and its motives on financial performance from an accounting and economic perspective. The study sample consisted of 66 firms listed on the Egyptian Stock Exchange from 2009 to 2020 and employed the OLS regression analysis. The results show a positive effect of share buybacks on financial performance, measured by the added economic value (EVA) and the return on equity (ROE). In contrast, the results show an insignificant effect of share buybacks on the return on assets (ROA). The study found that management’s motives to buy back shares affect a company’s financial performance. The study also found that management’s motive to achieve a cash surplus improves the company’s financial performance. The study also found that the company’s management motive to increase earnings per share is one of the most important motives for the company to buy back shares, which also improves the company’s financial performance. The study also showed that the economic value added (EVA) is one of the most important measures of financial performance, in which the repurchase of shares had the most significant impact in improving it over the return on assets or the return on equity. However, the study did not find evidence that the firms repurchase of shares out of increased financial leverage affects the financial performance. Moreover, the study found that increasing earnings per share is the most crucial motive for sharing buybacks in the Egyptian market.


INTRODUCTION
Share repurchases mean that the firm is buying its shares in the market or directly from shareholders when the purchase price falls in the stock market, or to reduce the number of shares outstanding in the market (Sun et al., 2014). Share buybacks are typically driven by shareholder value-creating benefits, as evidenced by the increase in share price and earnings per share following share buyback announcements (Wesson & Botha, 2019). However, for shareholder value creation to be sustainable, the relationship between finance, the economy, and society must be considered (Lagoarde-Segot, 2017). To build investor confidence in their policies, companies try to maximize shareholder wealth by distributing dividends to investors or buying back their shares at a higher price than the prevailing market price. As a result, share buybacks have become a prominent institutional practice in developing and developed economies.
Share buybacks have grown tremendously in many global markets, especially after the United States relaxed regulations in 1982, followed by Japan and Germany in 1984 and 1986, respectively. In Egypt, repurchasing shares is a rare event, but due to the economic conditions fol-lowing the Corona crisis, the repurchase of shares has increased in many Egyptian companies (Habiba, 2021). In addition, the Egyptian government has allowed firms to buy back shares without prior notice three days before, so more than 20 Egyptian rushed to buy back their shares from the market, with the rates ranging from 0.5% to 2.5% of the shares offered, such as Orascom Development Egypt, El Sewedy Electric, GB Auto, Palm Hills, and Nasr Housing (Enterprise. Press, 2020).
Several studies have argued the issue of repurchasing shares from the perspective of its impact on a company's financial performance, and the results of these studies are mixed. Some studies have shown that the repurchase of shares has a sound effect on the economic and financial performance of a company (e.g., Andriosopoulos & Lasfer, 2015;Abraham et al., 2018). While others indicated that the repurchase of shares deteriorates a company's value if the repurchase price is less than the fair value of the share, in addition to the opportunistic behavior of the management to achieve unusual returns benefiting through the availability of information not available to investors. On the other hand, board members can collude with specific investors and buy from them (e.g., Iyer & Rao, 2017;Wang et al., 2020). Some studies have shown no effect of repurchasing shares on a company's financial performance, since a decrease in the number of outstanding shares does not affect if the achieved return is fixed after the purchase process (e.g., Chong

LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT
Repurchasing shares is one of the issues that sparked controversy and debate among researchers and academics due to the lack of conclusive results for the impact of this issue on a firm's financial performance. Ikenberry et al. (1995) found that the average market reaction, measured two days before and two days after the announcement, is 3.54%. The higher the percentage of shares announced for repurchase, the greater the market reaction. Kotapati et al. (2013) showed that the relationship between long-term price performance and undervaluation is significantly more substantial for repurchasing firms with higher upper bounds of their announced price ranges. Lin et al. (2011) found that share prices rose in response to share buyback announcements in Taiwanese firms. Chang et al. (2013) also indicated a positive reaction in the stock market due to the announcements of share buyback practices by large US firms during 2001-2005, leading to an increase in abnormal returns. Miller and Prondzinski (2017) also found an improvement in operational performance due to share buyback practices, especially in low-growth firms. Wang et al. (2020 found significantly higher abnormal returns after buy-andhold repurchases over one year. In addition, they found an improvement for buyback firms in the fiscal year at the same time as buyback announcements, but found insignificant difference in the subsequent fiscal year. On the other hand, Sue and Lin (2012) showed that firms did not achieve abnormal returns due to buying their shares. Instead, they found the abnormal returns are significantly negative over twelve, twenty-four, and thirty-six months. Andrianopoulos and Laser (2015) found that the average market reaction is lower than that of US firms and is independent of investor protection. There is insignificant difference between Germany and the UK. However, in France, excess returns are lower. They concluded that the market value depends on the frequency of announcements. They also found that the date of the higher reports goes back significantly to the initial statements, indicating that the first announcement greatly reduces any information asymmetry, and thus its On the other hand, financial managers make their repurchase decision using residual cash only after the investment decision (Brav et al., 2005); therefore, share repurchases alleviate overinvestment problems by distributing surplus cash when investment opportunities are scarce (Cho et al., 2016). Excess cash raises agency problems by allowing self-interested managers to transform these assets for personal benefits at low cost or to overinvest the excess cash in harmful net present value projects (Cho et al., 2016). Oswald and Young (2004) showed that firms used share buybacks to distribute excess cash and had an advantage of investment opportunities to buy back their undervalued shares. In addition, firms may prefer share buybacks over dividends to distribute excess cash as it is more flexible than dividends (Jena et al., 2017). One of the reasons for abnormal returns to shareholders after share buyback announcement is decreasing free cash flow and agency cost (Jena et al., 2017). Jena et al. (2017) found that firms prefer to invest in their stocks when no investment opportunities exist. Therefore, it is always better to distribute surplus cash than invest in passive NPV projects. Furthermore, firms are more likely to make buybacks if surplus cash flow and decreased investment opportunities are present.
Otherwise, earnings per share is one of the most crucial accounting elements that are relied upon by investors, and because share buybacks include a decrease in the number of outstanding shares, they will rise even though the earnings level has not changed (Habiba, 2021). Share buybacks can coincide with or follow the periods of temporary increases in earnings. Such temporary changes in earnings make earnings more volatile (Di & Marciukaityte, 2015). Firms are more likely to smooth earnings when facing high earnings variability (Beattie et al., 1994). Several studies showed that firms might buy back their shares to increase earnings per share (e.g., Andriosopoulos (Habiba, 2021). Several studies showed that a firm's management manages its earnings in an upward direction to meet the remuneration plans of the senior management, relying on shares buyback as an essential mechanism in this regard (e.g., Sun et al., 2014;Punwasi & Brijlal, 2016;Habiba, 2021). Turco (2018) analyzed the interaction between a stock-based CEO's salary and the probability of share buybacks over 25 years. The results showed that maximizing shareholders' value, driven by managers' remuneration based on shares, prompted American firms to transfer resources from real investment to the tendency to repurchase shares to increase share prices. The results also indicated that determining managers' bonuses based on stock profitability motivates managers to increase shareholder value through share buybacks at the expense of declining real investment and long-term growth.
On the other hand, share buybacks can play a significant role in changing the capital structure. Specifically, share buybacks increase the debt-to-equity ratio for firms with low leverage. An appropriate level of leverage leads to an ideal capital structure. In addition, it strikes a good balance between beneficial tax avoidance and financial insolvency risks, lowering the cost of capital and thus increasing shareholder value (Habiba, 2021). While there is evidence that incorporating debt into the capital structure can increase a company's value, the assumption that leverage is a source of value creation through buybacks is less clear (Almeida et al., 2016).
Moreover, tax regulations made debt relatively less attractive than equity. As a result, firms buy back shares to adjust the debt ratio to the target level, assuming that the optimal debt ratio is determined.
Increasing the leverage may also lead to a higher percentage of internal ownership (Habiba, 2021).
Share buybacks help firms change many ratios, including the leverage ratio, which provides investors with insight into debt and equity costs. An increase in a firm's debts leads to tax advantages by reducing income taxes, but it also may result in financial distress, and unlike a low-debt firm, it can have the ability to repay its debts (Habiba, 2021

METHODOLOGY
The study sample focuses on firms listed on the Egyptian Stock Exchanges in various sectors. It had at least one share repurchased event been selected during the study period, excluding banking and insurance sectors due to their different nature, conditions, and characteristics. The data is available from the Misr Firm for Information Dissemination website, Mubasher Information website, the annual financial reports published from the companies' websites, and the Egyptian Stock Exchange website. Bhattacharya and Jacobsen (2016) and Habiba (2021) adopted this annual data matching in different periods.
This study used SPSS software to verify the study variables and examine the developed hypotheses.
The dependent variable in this study is financial performance, measured through three indicators, namely, economic value added, return on assets and return on equity. The explanatory variables (shares buybacks and their motives) contain shares buybacks, excess cash flow, earnings per share, and financial leverage. In addition, the study used various control variables that may have a potential influence on the dependent variables. The control variables in this study include firm size and growth. Table 2 shows the variables' names and symbols, as well as their definition and measurements.

Share repurchase (Independent variable)
Share repurchases relate to share repurchases that result in a net cash effect for a firm and therefore include shares repurchased by holding firms from existing shareholders and shares repurchased by subsidiaries of a holding firm. Share buybacks are a percentage level as the absolute value of the annual repurchase, measured by the total amount of assets overdue for the one-year buyback period, similar to the methodology (Almeida et al., 2016).

Motives for share buybacks (Interactive variables)
There are many incentives to buy back shares, but the study will focus on some of them, namely:

Excess cash flow (CFO)
Many studies have measured a firm's surplus cash flow using different methods, including the net profit after taxes and interest plus depreciation and divided by the firm's total assets for the previous year. Some depend on the firm's total cash flow divided by its total assets. This study relied on the first measure of cash flows, according to Almeida et al. (2016).

Increased earnings per share (EPS)
If shares decrease, no one will own the shares. If a firm recognizes them as treasury shares, they will own the shares they can resell later, but they do not carry any voting rights or dividends. Since earnings per share through dividing earnings by a total number of outstanding shares, earnings per share will increase as the total number of shares decreases. Several studies have measured the average change in earnings per share as one of the most important motives for repurchasing shares. This study relied on Jena et al., (2017). EPS = Average change in earning per share in last three years immediately before share repurchase.

Excess financial leverage (LEV)
Leverage ratio measures how much a firm spends using borrowed funds. The debt-to-equity ratio measures how much or how little debt is used compared to the size of a firm's capital. Many studies have measured the rate of financial leverage, whether through the total debt divided by a firm's total assets or the firm's total debts by the firm's total equity (e.g., Almeida et al., 2016;Jena et al., 2017). This study relied on measuring the financial leverage ratio with a firm's total debts divided by its total equity, according to Jena et al., (2017). Firm leverage ratio = total debt to total equity.

Financial performance (Dependent variables)
Performance measures play an important role in creating value for firms. However, it is difficult for the management to select an appropriate performance indicator that accurately measures its performance over a specific period. Moreover, some criticize conventional accounting procedures for not considering the total cost of capital. Therefore, EVA is unique in the market as it considers the cost of capital (Behera, 2020

Economic value added (EVA)
According to the EVA concept, a firm creates value for shareholders only if it generates returns above its cost of capital. In short, an increase in returns over the cost of capital is called EVA. This concept embodies the concept of residual income that existed earlier (Madhavi & Prasad, 2015). EVA is the best performance measure that approximates the economic profitability of an organization more than any other and is directly related to shareholder wealth formation over time. EVA is the financial measurement tool that can calculate and capture economic profit for a firm. EVA requires three inputs for its calculation, as listed below:

Return on Assets (ROA)
ROA is a measure that shows the ratio of a firm's profitability to its total assets.
ROA is calculated by dividing net income after tax for a given year by total assets.

Return on Equity (ROE)
Investors consider ROE to be one of the best performance measurement tools. ROE is calculated by dividing net income after tax for a given year by the book value of equity at the beginning of the year.

Control variables
Many studies relied on some variables related to a firm that may affect the firm's financial performance, so some control variables were included, namely the firm size and sales growth rate (e.g., Kalacheva, 2015;Habiba, 2021).

Firm size:
The natural logarithm of a firm's total assets measured at the beginning of the year.
Growth is measured by the percentage change in the firm's sales (current year's sales -previous year's sales) / previous year's sales.

Model specification
This study focused on the EVA model, ROA model, and ROE model used to measure financial performance (Madhavi & Prasad, 2015). The three models specified for this study are presented in Figure  1, While the measurement of variables is shown in Table 2.

Data analysis method
The ordinary least squares (OLS) technique ran the models. This study ensures that the regression conditions are met: linearity, normality, homoscedasticity, and no autocorrelation through the Durbin Watson test. The Variance inflation factor (VIF) was used to test for the presence of multicollinearity. The study utilized the following statistics to test the hypotheses: F-statistic with its associated p-value, the adjusted R 2 , and the t-statistic with associated p-values (Hair et al., 2014). This study used the SPSS statistical analysis software package version 26.  Table 3 also shows that the mean of return on assets (ROA) is 8% with SD 3%, while the max is only 13%, which is a low rate for these firms in the study sample. However, the mean return on equity (ROE) was 7%, with an SD of 4%, while its max was 45%.  Table 4 shows the correlation among the variables, presented as a matrix. The table shows that the correlation between the variables ranges from 11.15% to 82.7%. VIF value does not exceed 2, indicating the absence of multicollinearity.

RESULTS AND DISCUSSION
The following statistics would test the hypotheses: t-values, p-values, and the adjusted R 2 . Table  5 presents the regression analysis results for financial performance predictability using share repurchase to test the first hypothesis (H 1 ). Table 5 shows that the F-statistics are significant (p-value = 000). This indicates that the variables,

C. The ROE Model
ROEit =β0 + β1 Repurchase i,t + β2 Growth i,t+ β3 Size i,t+ εi,t (H1) ROEit =β0 + β1 Repurchase i,t + β2 CFO i,t + β3 CFO i,t * Repurchase i,t +β4 Growth i, t-2+ β5 Size i, t-3+ εi,t (H2) ROEit =β0 + β1 Repurchase i,t + β2EPS i,t + β3EPS i,t * Repurchase i,t +β4Growth i,t+ β5 Size i, t+ εi,t (H3) ROEit =β0 + β1 Repurchase i,t + β2Lev i,t + β3Lev i,t *Repurchase i,t + β4 Growth i,t+ β5 Size i,t+ εi,t (H4) On the other hand, Table 5 shows a statistically positive significant effect of the share repurchase variable on (EVA and ROE), respectively, so t-values were 25.939 and 16.115, respectively. However, the study did not find a statistically significant effect of repurchasing shares on ROA (p-value = 0.708), and the t-value was 0.375. Thus, the hypothesis that states a positive effect of repurchasing shares on a firm's financial performance is partially accepted. This result is consistent with Albaity and Said (2016) Table 7 shows that the F-statistics are significant (p-value = 000). This result indicates that the variables, repurchases, EPS, Share repurchase*EPS, Growth, and Size, jointly affect financial perfor-mance. The Durbin-Watson statistics were all less than 2, indicating that the residuals of the regression models were uncorrelated and independent. The three models explain the total impact of all variables on EVA, ROE, and ROA, where Adj. R2 is 78.3%, 45.6%, and 62.3%, respectively. However, the interactive variable (Share repurchase*EPS) had the highest effect on EVA, ROA,

An additional analysis
An additional analysis was conducted to differentiate the incremental explanatory power of the cash flow as a motive for share repurchase (Inc.R 2 Cash). The incremental explanatory power of the average change in earnings per share is a motive for share repurchase (Inc.R 2 EPS) and financial leverage for share repurchase (Inc.R 2 Lev) is presented in table 10. • EVAi,t = β0 + β1CFOi, t + β 2 Repurchase i,t + ε i,t .  • ROA i,t = β0 + β 1 CFOi, t + β 2 Repurchase i,t + ε i,t . , • ROE i,t = β0 + β 1 CFOi, t + β 2 Repurchase i,t + ε i,t .
Column (5) Inc. R 2 . Repurchase (measured as Adj. R 2 CFO, Repurchase -Adj. R 2 CFO) refers to the incremental explanatory power of share repurchase. Table 10 shows that the incremental explanatory power of the average change in earnings per share (EPS) is considered the strongest motive for repurchasing shares influencing a firm's financial performance (ROA and EVA), as it represents 10.4% and 7.2%, while it represents 0.6% for ROE. Table 10 also shows that the incremental explanatory power of financial leverage as a motive to repurchase shares is the least clear motive on a firm's financial performance measured by EVA and ROA as it represents 0.6% and 0.2%, respectively. In contrast, it is the most explicit motive on financial performance measured by ROE, representing 7.4%. The table also shows that the incremental explanatory power of the surplus cash flows as a motive to buy back the shares almost has a similar effect on the financial performance of a firm (EVA, ROE, and ROA) as it presents 1.6%, 2.3%, and 1.9%. On the other hand, the share repurchase process (Repurchase) has the highest incremental explanatory power on EVA, ROE, and ROA as it represents 52.3%, 51.2%, and 1.7%, respectively.

CONCLUSION
The study examined the impact of the share buyback process on financial performance and the interactive impact of share repurchase motives on the relationship between share buybacks and firm financial performance. The study found an effect of share buybacks on financial performance. However, this effect differs according to the tool used to measure financial performance. The impact of share buybacks was significant on economic value added and return on equity, but was insignificant on return on assets.
The study also concluded that motives for share repurchases were different, which affected the financial performance, since the motive for increasing earnings per share was the most motive for share repurchases affecting financial performance. This study proposes more mandatory disclosure of share repur-  Table 10. Incremental explanatory ability for share repurchases motives on financial performance chases in the annual financial reports of firms listed on the stock exchange. Also, it is suggested that additional research be undertaken to explore the relationship between share repurchases and financial reporting quality. There is also a need to expand empirical research to study the motives for buying back shares and whether this affects the sustainability of firms that buy back shares. The study also investigates the relationship between share repurchases and strategic risk management.