The effectiveness of price-stabilizing share buybacks: Evidence from listed firms in Vietnam

Abstract

The majority of share buybacks in Vietnam involve the sole stated purpose of price stabilization. Using a sample of repurchases announced in 2008–2016 and control firms based on propensity score matching, we find the Vietnamese repurchases to be effective in stabilizing prices and enhancing liquidity. Utilizing the special disclosure features in Vietnam that allow clearly-defined sub-windows of pre-trading, trading, and post-trading, we further examine the different mechanisms of market reactions and actual firm buyback transactions in the buyback process. We document significantly higher abnormal returns over the pre-trading window driven by market reactions, and improved liquidity and reduced volatility over the firm’s actual transaction window for the buyback firms. We also report a significant moderating effect of target shares announced and actual shares repurchased depending on the sub-window under examination. We do not find any evidence of effectiveness in the post-trading window or over a longer-term beyond the buyback period.