Abstract
AbstractAlthough several empirical studies report significant positive long-run abnormal stock returns following share buybacks, a recent event study paper claims that such anomalies have disappeared in the most recent decade and this disappearance of abnormal performance is not sensitive to the methods used. The present paper makes an attempt to investigate this claim using 63 Indian share buybacks which took place between July 2008 and June 2012. We consider the application of several event study methods and our findings are a bit mixed. We conclude that the long-run anomalies following stock repurchases in India are still sensitive to the employed methodologies.
Highlights
The long-run abnormal stock return following share buybacks is a well-documented anomaly in the finance literature (e.g. Ikenberry, Lakonishok, & Vermaelen, 1995; Lakonishok & Vermaelen, 1990; Peyer & Vermaelen, 2009)
Rpt is the monthly return on the portfolio of event firms, E(Rpt) is the expected return on the event portfolio which is proxied by the return of a size-BM-matched control firm and T is the total number of months in the sample period
We further report that the buy-and-hold abnormal return (BHAR) are found to be significant when the event horizons are one and two years, respectively
Summary
The long-run abnormal stock return following share buybacks is a well-documented anomaly in the finance literature (e.g. Ikenberry, Lakonishok, & Vermaelen, 1995; Lakonishok & Vermaelen, 1990; Peyer & Vermaelen, 2009). Peyer and Vermaelen, for example, argue that the anomalies following share repurchases do exist and are not dependent on different measurement and model specifications. They categorize the full sample period into two subperiods and document positive and significant abnormal returns for each occasion. While a large number of studies conclude that there exist positive and significant long-term abnormal returns following share buybacks in different security markets, such assessment is yet to be documented in the context of India. The findings of our research document that the long-run anomalies following share repurchases in India do exist and such abnormal performances are sensitive to the methodologies employed to measure the stock price behavior after the event.
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