Motivations for Buyback Among Indian Companies
XI Capital Markets Conference, 21-22 December 2012, Indian Institute of Capital Markets (UTIICM)
21 Pages Posted: 3 May 2013
Date Written: April 23, 2013
Buyback strategy is increasingly adopted by Indian firms since its introduction in 1999. Since its introduction, more than 250 announcements have been made by firms to provide necessary support for their undervalued stocks. The motivations behind buyback decision are necessary to be understood to have complete understanding of corporate usage of buyback. The present study is first ever attempt for Indian capital markets whereby the possible motivations affecting buyback decision have been identified and represented using suitable variables. Ultimate analysis of possible motivations has been performed by developing a multiple regression analysis model with proportion of shares bought to total outstanding shares as dependent variable. A final sample of 135 buyback announcements covering a period of 1999-2011 has been taken under consideration for regression analysis. With undervaluation hypothesis emerging as the most dominant determinant, followed by availability of free cash, buyback of shares has emerged as a significant financial decision to provide short term support to share prices along with a wonderful tool to utilise excess cash to achieve desired financial results.
Suggested Citation: Suggested Citation