Factors Influencing Share Buyback Decisions of Indian Companies

50 Pages Posted: 19 Dec 2016

See all articles by Sarthak Jena

Sarthak Jena

Indian Institute of Technology (IIT), Kharagpur - Vinod Gupta School of Management

Chandra Sekhar Mishra

Indian Institute of Technology (IIT), Kharagpur - Vinod Gupta School of Management

Prabina Rajib

Vinod Gupta School of Management

Date Written: September 17, 2016

Abstract

This study examines the motivation for share repurchase decision by taking 240 non-financial share buybacks from the period 1998-99 to 2014-15. It employs logistic regression model to find the association between the firm-specific parameters and share repurchase decision. The empirical findings corroborate the evidence that excess capital hypothesis, undervaluation hypothesis, liquidity hypothesis and employee stock option hypothesis are the prime incentives for share repurchase decision in India. In the Indian context, leverage hypothesis does not hold good because of restriction of the use of debt in share repurchase. The study doesn’t support substitution hypothesis. The study for the first time, examines liquid hypothesis, employee stock option hypothesis and corporate governance hypothesis along with other hypotheses to know the impact of these on share buyback decisions. The result shows that share repurchasing firms are more liquid than non-repurchasing firms. This study finds a significant and positive relationship between stock options and the decisions to buy back shares, but it doesn’t find any evidence supporting corporate governance hypothesis.

Keywords: Share Repurchases; Liquidity Hypothesis; Logistic Regression; Employee Stock Option Hypothesis; Corporate Governance

JEL Classification: K22; G34

Suggested Citation

Jena, Sarthak and Mishra, Chandra Sekhar and Rajib, Prabina, Factors Influencing Share Buyback Decisions of Indian Companies (September 17, 2016). 8th Conference on Financial Markets and Corporate Governance (FMCG) 2017. Available at SSRN: https://ssrn.com/abstract=2886739 or http://dx.doi.org/10.2139/ssrn.2886739

Sarthak Jena (Contact Author)

Indian Institute of Technology (IIT), Kharagpur - Vinod Gupta School of Management ( email )

Kharagpur, 721302
India

Chandra Sekhar Mishra

Indian Institute of Technology (IIT), Kharagpur - Vinod Gupta School of Management ( email )

Kharagpur, 721302
India

Prabina Rajib

Vinod Gupta School of Management ( email )

West Bengal
India

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