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

Srinivasa Reddy Kotapati, Vinay Kumar Nangia and Rajat Agrawal

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Capital market studies; Corporate governance; Event-study; India; Price-to-earnings; Signaling effect; Share buybacks; Share repurchases; Stock returns; Undervaluation (search for similar items in EconPapers)
JEL-codes: G1 G14 G18 G2 G24 G3 G34 M1 M4 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published in Asia-Pacific Journal of Management Research and Innovation 1.9(2013): pp. 107-124

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