Measuring Long Term Benefits to Non Tendering Shareholders From Buyback of Shares for Indian Capital Markets

Journal Name: 
Journal of Accounting and Finance
Volume: 
Vol. 29 - No. 1
Authors: 
Author Name Designation Organization
Ashish Arora
Rajeev Puri
Abstract: 

Buyback of shares in Indian capital markets has become popular means of utilizing the profits and reserves of a company. It has been utilized by number of companies repeatedly over the years to send messages to shareholders. The present study is an attempt to measure the effectiveness of buyback to fulfill the basic objective, i.e shareholders’ wealth maximization. Taking an experimental sample of 92 different companies that undergo buyback and an equally appealing control sample of 92 non buyback companies, an effort has been made to measure the benefits accruing to existing shareholders of buyback companies. Measuring the buy and hold returns accruing to existing shareholders the hypothesis of abnormal returns accruing over the next 1,2 and 3 years post buyback has been tested using suitable testing mechanism. The results clearly disprove the basic assumption of effectiveness of buyback mechanism in giving significantly high abnormal returns to shareholders of buyback companies in comparison to their counterparts.