ANNOUNCEMENT EFFECT OF SHARE BUYBACKS OVER THE FIRM VALUE
Keywords:
.Abstract
Share buybacks are the corporate restructuring weapon meant to enhance the shareholder value. Share buybacks in a way lead to disbursement of surplus cash through flexible means involving voluntary pay-out without a year-to-year commitment. It is evident that when executives are in-charge of surplus cash, and low investment opportunities then managers are more likely to use free cash in value-destroying projects. This paper is focused upon whether corporate entities in India utilize share buyback for the purpose of shareholder wealth maximization and whether there is any substantial grounded reason of presence of surplus cash influencing share buyback decision in Indian Stock Market. Paired t-test has been applied on a sample of companies listed at National Stock Exchange of India Limited making announcement of share buybacks during 1st April, 2010 to 31st March, 2014. The output pertaining to firm value demonstrates the announcement effect of share buyback over the Market-to-Book (MTB) ratio. The pre-buyback MTB ratio is not statistically significantly different from the post buyback MTB ratio at 5 % level of significance. Accordingly, it can be concluded that the firm value in Indian Stock Market is not largely influence by the share buyback of companies rather the existence of excess cash flows propel the companies to disburse them to investors in the flexible form of share buybacks instead of revision in annual dividend.
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