Understanding equity repurchase motives for different firm set-up: Indian evidence

  • Received December 16, 2020;
    Accepted January 25, 2021;
    Published February 1, 2021
  • Author(s)
  • DOI
  • Article Info
    Volume 18 2021, Issue #1, pp. 90-100
  • Cited by
    1 articles

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License

Corporates express their intention to reward shareholders during repurchase announcements by maximizing their wealth. However, most empirical research finds that stocks’ performance is poor when repurchase announcements are made, and there are no significant abnormal returns. In the Indian context, the present study examines firms’ real intention behind repurchase decisions. The sample comprises 132 firms listed on the Bombay Stock Exchange (BSE) from 2012 to 2018. A Tobit regression model has been used on different firm set-up. The empirical results reveal that low stock valuation is the prominent reason for buybacks among corporates. Firms prefer repurchases to provide abnormal returns to the investors; however, the Indian market does not react much positively to the repurchases, and this might be the reason for less encouraging buybacks in the Indian market. Further, the tender offer is the most preferred mode to open market repurchases. In the case of service firms, undervaluation, low earnings, and low debt ratios are the contributing factors impacting repurchases. Firms with low dividend intend to have more buybacks to reduce their tax burden.

The infrastructural support provided by FORE School of Management, New Delhi in completing this paper is gratefully acknowledged.

view full abstract hide full abstract
    • Figure 1. Open market versus tender offer repurchases across different firm set-up
    • Table 1. Number of repurchases
    • Table 2. Descriptive statistics
    • Table 3. Mean and t-test values across firm set up based on offer type, sector, size, and age
    • Table 4. Mean and t-test values across firm set-up based on valuation, cash, leverage, and dividend
    • Table 5. Tobit regression results for different firm set-up
    • Table A1. Correlation matrix
    • Conceptualization
      Vandana Bhama
    • Data curation
      Vandana Bhama
    • Formal Analysis
      Vandana Bhama
    • Investigation
      Vandana Bhama
    • Methodology
      Vandana Bhama
    • Software
      Vandana Bhama
    • Validation
      Vandana Bhama
    • Visualization
      Vandana Bhama
    • Writing – original draft
      Vandana Bhama
    • Writing – review & editing
      Vandana Bhama