Buyback Announcement and Its Impact on Shareholders’ Wealth: A Study on Bombay Stock Exchange

Abstract

Buyback announcement is a programme through which companies buy back its own shares from the public due to many reasons such as undervaluation of share, market situation, lack of investment opportunity and so on. In fact, it may affect the share price movement and company’s performance. In the last couple of years, there is a significant increase of funds offered for buyback in the Indian capital market. Therefore, the study attempts to find out its impact on shareholders’ wealth. To know this impact, buyback announcement are analysed industry-wise using companies of BSE 500 index. The samples are selected based on prescribed criteria made by the researcher which are exclusively related to the number of times buyback programmes are announced by companies under a particular industry. The study analyses the share price movement of sampled companies for 30 days before and 30 days after the announcement. The market adjusted model is used to calculate the abnormal returns (AR). The statistical tools such as paired sample t-test and analysis of variance are used for the analysis. The study concludes that buyback affects the share price of health care industry, fast-moving consumer goods (FMCG) industry, chemical and petrochemical industry, capital goods industry and finance industry, but it is not applicable to other industries such as agriculture industry and transport equipment industry, which are not significant. The reasons behind this may be the size of the buyback offer, mode of the buyback offer and market situation. The study also concludes that AR earned by the investors are not different according to the nature of the industries. This study proves that buyback announcement is irrelevant to shareholders’ wealth.