South Asian Journal of Management

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Factors Influencing Share Buyback Decisions of Indian Companies


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1 Vinod Gupta School of Management, Indian Institute of Technology, Kharagpur, India
     

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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 does not 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 does not find any evidence supporting corporate governance hypothesis.

Keywords

Corporate Governance, Employee Stock Option Hypothesis, Liquidity Hypothesis, Logistic Regression, Share Repurchases.
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  • Factors Influencing Share Buyback Decisions of Indian Companies

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Authors

Sarthak Kumar Jena
Vinod Gupta School of Management, Indian Institute of Technology, Kharagpur, India
Chandra Sekhar Mishra
Vinod Gupta School of Management, Indian Institute of Technology, Kharagpur, India
Prabina Rajib
Vinod Gupta School of Management, Indian Institute of Technology, Kharagpur, India

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 does not 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 does not find any evidence supporting corporate governance hypothesis.

Keywords


Corporate Governance, Employee Stock Option Hypothesis, Liquidity Hypothesis, Logistic Regression, Share Repurchases.

References