Share Price Behavior and Buyback Announcements by Listed Companies- An Evidence from the Indian Stock Market

Abstract

Buyback announcement is considered as the prominent announcement made by corporate houses. Many companies have announced the stock buyback in India. Share buybacks have progressively been examined as a key concern in financial study which is seeing as a strong implication in formulating corporate policy. Share buyback provide enough signaling ability to affect the share prices all over the world. The present research is an effort to examine the share price movement before and after the buyback repurchase through the open market mechanism for a sample of 46 companies made during the April 2015 to March 2022. The present manuscript uses the Ordinary Least square (OLS) regression to find out the alpha and beta values which is further use to arrive at the average abnormal return (AAR), cumulative abnormal return (CAR) and cumulative average abnormal return (CAAR). The present effort employs the Nifty 50 as a benchmark for the market model to anticipate the expected return of the sample companies. An estimation window of 200 trading days (ranging from day –230 to day –30) and an event window of 61 trading days (spanning from day –30 to day +30, including the event day) have been used to derive the results. The study reports that AAR on the declaration date is 1.09 percent and Cumulative average abnormal return (CAAR) is 7.53 percent for 61 days’ event window. As a result of analysis of buyback announcements in India shows that there is greater degree of signaling ability and it can help in accumulating the wealth for the shareholders.