Abstract
Cash distribution by stock buyback is one ways to increase stockholder wealth. This study is to analyze the effect of misprice (misvaluation) and leverage on stock buyback. Limited prior study discussed about stock buyback and misprice especially in Indonesia, theoritically, in Indonesia not only firm with undervalue stock do stock buyback but also firm with overvalue stock. Stock buyback can increase the stock prices, but the implementation in Indonesia is still small. Non-financial firms listed on the Indonesia Stock Exchange from 2010 to 2017 used in this study. Samples were taken by a purposive sampling method based on certain criteria. The data analysis techniques use multiple linear regression statistical analysis. The results showed that misprice has a positive effect on buyback. The different thing found in Indonesia because overvalued firms hold stock buyback. Leverage has a negative effect on stock buyback. Firms with leverage below the target tend to do a stock buyback. In addition, the stock buyback also used to correct prices (for undervalued stock to be fair). The implication in this study is stock buyback not only viewing to correct prices but also giving a signal to the market that the firm is in a good fundamental condition.
Highlights
The firm runs its business aimed to maximize firm value
Eisenhardt (1989) define stock buyback as a transaction where a firm buyback a portion of a firm's stock, this purchase will have an impact on reducing the number of stock outstanding, thereby increasing earnings per share (EPS) and increasing the firm's stock price
Stock buyback is associated with investment motives
Summary
The firm runs its business aimed to maximize firm value. Firm value is important because it will increase stockholder wealth. The research findings show that the market to book ratio has a negative effect on stock buyback (Dittmar, 2000 ; Mitchell & Dharmawan, 2007; Oswald & Young, 2008; Jiang, Kim, Lie, & Yang, 2013; Teng & Hachiya, 2013). The research findings get the result that leverage negatively affects the stock buyback This means that the lower the leverage ratio of a firm, the possibility of a firm doing a stock buyback will be higher The implication in this study is stock buyback should be seen to correct prices and as a signal to the market that the company is in good fundamental condition
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
