Determinants of the choice of share buyback methods: A study in India

Abstract

This study examines signaling, excess cash flow, substitution, leverage, agency cost, stock and liquidity hypotheses by considering firm-specific parameters to find out their impact on selection between tender offer and open market method while doing buyback. This study is based on the basic premise that the rules and regulations those govern these two methods are completely different and have different objectives. This study takes 430 non-financial buybacks from 1998-1999 to 2017-2018 for analysis and these buybacks segregated in terms of tender offer ( 176) and open market methods (254). In this study, both univariate and multivariate tests have been employed. T-test and Wilcoxon rank sum test are used for univariate analysis, and logistic regression is used for multivariate analysis. The empirical findings corroborate the evidence that free cash flow hypothesis, leverage hypothesis, agency cost hypothesis and liquidity hypothesis are the prime motivators for choosing of tender offer than open market share repurchase. This study finds that dividend paid and choosing of tender offer are substitutes. The results also support the notion that for correcting short-term undervaluation firms choose tender offer rather than open market methods. This study is the first comprehensive analysis in the Indian context to find out the motivations behind the selection of share repurchase methods.

Constraints Perceived by the Members of FPOs in Varanasi District, Uttar Pradesh, India

“…Inadequate infrastructure can hinder the efficient functioning of FPOs, affecting their ability to store, process, and transport agricultural produce effectively. Therefore, investments in essential infrastructure such as storage facilities, processing units, and transportation networks are critical to overcoming these challenges [15]. The challenge related to a lack of connections with financial resources emphasizes the need for FPOs to establish relationships with financial institutions, access credit facilities, and secure funding for their agricultural activities.…”

Information Content of Share Buybacks from an Earnings Perspective

“…The share repurchase ratio serves as the independent variable, while firm size, cash flow, debt level, growth opportunity and liquidity are employed as control variables to limit the influence of financial characteristics on future firm performance. Following Lie (2005), Lee and Suh (2011) and Jena et al (2020), the definitions for all the variables of the empirical model are presented in Table 1. The null hypothesis examines whether the size of the current share buyback is related to future firm performance.…”

Valuation Effects of Magnitude and Frequency of Share Repurchases: Indian Evidence

“…In the United States, share repurchases can be used as a signalling tool and price support to help stock prices become more efficient, and share repurchases have no effect on stock prices in Malaysia (Chee et al, 2021). Jena et al (2020) investigated the determinants of share buyback choice in India for 430 buybacks and found that tender-offer and open-market buybacks are not close substitutes for one another that these two widely used methods serve different purposes for companies in India, and that companies should choose the repurchase method based on the buyback's purpose. EPS and operating income have a considerable beneficial effect on share repurchase, according to Aris et al (2020).…”