Market Timing Ability of Indian Firms in Open Market Repurchases

Indian Institute of Management Ahmedabad Working Paper No. 2013-11-10

37 Pages Posted: 27 Nov 2013

See all articles by Sobhesh Kumar Agarwalla

Sobhesh Kumar Agarwalla

Indian Institute of Management (IIM) Ahmedabad

Joshy Jacob

Indian Institute of Management

E Vasudevan

Date Written: November 20, 2013

Abstract

The paper examines the market timing ability of Indian firms engaged in open market repurchases. The study is primarily motivated by the unique disclosure feature of repurchases in India, where the disclosures are far more frequent than in any other market. We find that the repurchasing firms in India are able accumulate shares at favorable prices similar to the US market. However, the cost savings do not translate into significant wealth creation for the insiders as indicated by the short-run and long-run abnormal returns. This is contrary to the evidence from markets like the US. Further, the cross-sectional variations in the cost savings from repurchase execution in India are explained by the overall market returns and not by firm characteristics. These findings contrast with that of US, where the firm characteristics significantly explain the cross-sectional variation in the savings measure. It appears that the more frequent disclosure of repurchase activity in India cripples the market timing ability by reducing the information asymmetry between the firm and the outsiders. This conclusion is further supported by the irrelevance of the past or concurrent stock returns in explaining the time variation in the repurchase activity of firms.

Keywords: Repurchase, market timing, information asymmetry, emerging markets, regulatory disclosure

JEL Classification: G12, G14, G15

Suggested Citation

Agarwalla, Sobhesh Kumar and Jacob, Joshy and Vasudevan, E, Market Timing Ability of Indian Firms in Open Market Repurchases (November 20, 2013). Indian Institute of Management Ahmedabad Working Paper No. 2013-11-10. Available at SSRN: https://ssrn.com/abstract=2360417 or http://dx.doi.org/10.2139/ssrn.2360417

Sobhesh Kumar Agarwalla

Indian Institute of Management (IIM) Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India
91.79.66324865 (Phone)

Joshy Jacob (Contact Author)

Indian Institute of Management ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

No contact information is available for E Vasudevan

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