Abstract
This study aims to assess whether buyback activities in Malaysia are able to provide any economic benefits to shareholders both in the short-term and in the long-run. Specifically this study investigates the price effects on: (a) the announcement surrounding the repurchase intentions and implementation dates, (b) factors affecting the price effects on implementation dates and (c) long-run price effects subsequent to repurchase implementation. Using event study methodologies, this study finds no significant immediate price reactions surrounding repurchase intention dates. However, there is significant evidence of positive abnormal returns in days –5 to +5 surrounding the announcement of repurchase implementation. As for the factors affecting abnormal returns, this study finds that abnormal return responds positively to better prior price performance, dividend yield, directors’ holdings, and fraction of shares repurchased. However, abnormal return responds negatively to the previous amount of cash held, reported earnings per share, and market-to-book value. Using a three year period as a measure of long-run, this study finds that there is no evidence that repurchasing firms experience superior or inferior price performance. This is one of the first studies in Malaysia to examine the long- run wealth effects of share repurchase. Keywords: Share buybacks, shareholders’ wealth, corporate finance, long-run performance, emerging, Malaysia.
Highlights
Share repurchases or share buybacks were legally allowed in Malaysia following the Asian financial crisis in 1997
Before a firm could begin repurchasing its shares, it is required to submit a proposal of the repurchase intention to Bursa Malaysia and get shareholders’ approval through an extraordinary general meeting (EGM) or the annual general meeting (AGM) whereby at least 75 per cent shareholders’ approval must be obtained
Abnormal returns over a 3-day, 7-day and 11-day periods surrounding the announcement of repurchase intentions are –0.07 per cent, –0.09 per cent and 1.42 per cent respectively and they are all not significant at 10 per cent level
Summary
Share repurchases or share buybacks were legally allowed in Malaysia following the Asian financial crisis in 1997. Before a firm could begin repurchasing its shares, it is required to submit a proposal of the repurchase intention to Bursa Malaysia and get shareholders’ approval through an extraordinary general meeting (EGM) or the annual general meeting (AGM) whereby at least 75 per cent shareholders’ approval must be obtained. This mandate is only valid for a maximum of one year until the shareholders’ meeting. Since a firm is allowed to announce its intention of repurchasing every year without even following through with actual repurchases, the first announcement might have little information effect
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