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

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  • Reddy, Kotapati Srinivasa
  • Nangia, Vinay Kumar
  • Agrawal, Rajat

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.

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  • Reddy, Kotapati Srinivasa & Nangia, Vinay Kumar & Agrawal, Rajat, 2013. "Share repurchases, signaling effect and implications for corporate governance: Evidence from India," MPRA Paper 60147, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:60147
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    Cited by:

    1. Sarthak Kumar Jena & Chandra Sekhar Mishra & Prabina Rajib, 2020. "Do Indian Companies Manage Earnings Before Share Repurchase?," Global Business Review, International Management Institute, vol. 21(6), pages 1427-1447, December.
    2. Reddy, Kotapati Srinivasa, 2015. "The impact of the global financial crisis on border-crossing mergers and acquisitions: A continental/industry analysis," MPRA Paper 63563, University Library of Munich, Germany, revised 2015.
    3. Reddy, K. Srinivasa & Nangia, Vinay Kumar & Agrawal, Rajat, 2012. "Corporate mergers and financial performance: A new assessment of Indian cases," MPRA Paper 60425, University Library of Munich, Germany, revised 2013.
    4. Reddy, Kotapati Srinivasa, 2010. "Makeup behind the Mirror; Going beyond Delisting? – A Case of NIRMA," MPRA Paper 74291, University Library of Munich, Germany, revised 2016.
    5. Ravinder Kumar Arora, 2022. "Why Do Indian Companies Repurchase Their Shares?," Global Business Review, International Management Institute, vol. 23(1), pages 205-217, February.

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    More about this item

    Keywords

    Capital market studies; Corporate governance; Event-study; India; Price-to-earnings; Signaling effect; Share buybacks; Share repurchases; Stock returns; Undervaluation;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G2 - Financial Economics - - Financial Institutions and Services
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M1 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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