Share buyback announcement and share price in India: A causal analysis
The present paper unfolds the impact of buyback announcement on the stock prices in the Indian Stock Market. In order to analyze the reactions in the stock prices consequence to buyback announcement, a sample of two companies was randomly selected from all the companies which announced tender offer buybacks during 1st April, 2017 to 31st March, 2019 and analysis is executed using GARCH model based on the diagnostic properties of time series data. The outputs of the analysis of buyback announcement of both the sample companies are positive and there seems to have a marginal increase in price volatility but the dummy coefficient is statistically insignificant, implying that the price volatility is not influenced by the announcement of buyback activities. Despite the surge in the Indian Stock Market following the announcement of a share buyback, the subsequent period does not appear to be affected. This may be attributed to the fact that, for a long time, annual and interim dividends have been the preferred form of dividend payment in India, and investors were unable to accept a share buyback as a form of cash payment. Another possible explanation for such behavior may be that managers use share repurchases to satisfy short-term shareholders. Furthermore, there is no incentive from the investor community to distribute cash through share repurchases, which is in contrast to the findings in developed markets. In India, investor community has a biased attitude towards share buybacks in accepting it as a means of disbursing cash.