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Price Behaviour around Share Buyback in the Indian Equity Market

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  • Chanchal Chatterjee
  • Paramita Mukherjee

Abstract

Share repurchase is becoming an important corporate practice in India of late. But, there exists a paucity of systematic study regarding the motives, nature and impact of buyback on share prices of respective companies. This article makes an attempt to examine the effect of share repurchase announcement by Indian companies through open market route during 2008–2012 on their share prices around the announcement date. The article contributes to the literature by analyzing the market reaction to share buyback announcement, by applying the market model not used so far in the Indian context and by undertaking a rigorous analysis of share repurchase. Though share repurchase has not come up yet as a regular or useful practice by Indian companies like those in the US or Canada, our analysis does throw some light on the issue with interesting findings. First, unlike the US market, the trend in average additional return does not support any motive like undervaluation or maximizing shareholders’ value. Second, the cumulative abnormal returns (CARs) also do not reveal any increase in share price of the company after the repurchase announcement. Third, the sample shows that more of small and unknown companies go for share buybacks compared to known or large companies. Fourth, most importantly, the average abnormal returns (AAR) are not statistically different from zero in most of the cases both in pre- and post-announcement periods, implying that this corporate activity does not carry much information to the investors, possibly because of the ownership structure of Indian companies being majority owned or otherwise controlled by promoters. The lesson for the company is that it cannot revive the share prices through repurchase announcements in India. The implication for the regulator might be to check the real motives of such buybacks in India and accordingly formulate policies.

Suggested Citation

  • Chanchal Chatterjee & Paramita Mukherjee, 2015. "Price Behaviour around Share Buyback in the Indian Equity Market," Global Business Review, International Management Institute, vol. 16(3), pages 425-438, June.
    • Handle: RePEc:sae:globus:v:16:y:2015:i:3:p:425-438
    DOI: 10.1177/0972150915569931
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    References listed on IDEAS

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    Cited by:

    1. Chanchal Chatterjee, 2020. "Board Quality and Earnings Management: Evidence from India," Global Business Review, International Management Institute, vol. 21(5), pages 1302-1324, October.
    2. Jayanta Kumar Seal & Jasbir Singh Matharu, 2018. "Long-Term Performance of Buybacks in India," Global Business Review, International Management Institute, vol. 19(6), pages 1554-1566, December.
    3. Jagandeep Singh, 2018. "Impact of Automobile Recalls on Stock Prices: A Study in the Indian Context," Global Business Review, International Management Institute, vol. 19(2), pages 407-423, April.
    4. Ravinder Kumar Arora, 2022. "Why Do Indian Companies Repurchase Their Shares?," Global Business Review, International Management Institute, vol. 23(1), pages 205-217, February.
    5. Anupam Dutta, 2015. "Have the anomalies following share buybacks disappeared?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1119461-111, December.
    6. Chanchal Chatterjee & Paromita Dutta, 2017. "Price Behaviour Around Dividend Announcements in the Indian Equity Market in the Existence of Corporate Dividend Tax," Global Business Review, International Management Institute, vol. 18(2), pages 402-415, April.

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