Wealth Effects of Share Repurchase Decision of IPO Firms: Evidence from India

Abstract

The present study shades light on the short-term wealth effects of the share repurchase decision of Indian IPO firms on their stock prices. For the years 2000–2019, the sample considers the IPO companies who announce buybacks within 5 years after their listing. By evaluating short-term fluctuations in stock prices around the buyback announcement date, wealth effects have been quantified using the event study approach. According to our empirical investigation, investors responded favourably to the news and produced positive 1.13% nonsignificant abnormal returns on the event day. Further investigation finds that these companies likewise endure erratic stock performance in the days that follow the announcement, with the exception of the day when they actually purchase back their shares, which produced positive and significant abnormal returns to investors of 0.92%. Also, over the event window, the results are positive at 10.69% and significant. Our results show that investors favourably view share repurchase by IPO firms and can regard it as a sound investment strategy. This study also adds to the scanty literature about newly listed firms’ payout preferences.