Why Do Indian Companies Repurchase Their Shares?

Abstract

The study explores the share repurchase behaviour of Indian firms in the context of many hypotheses propounded in the existing literature related to share repurchases. The sample consists of non-financial firms comprised in the S&P BSE-500 Index for the period 2003–2017. The repurchase sample consists of 115 repurchases. A Tobit regression model is used to identify firm characteristics associated with repurchasing firms. Unlike prior studies in India, this study finds strong evidence of share undervaluation as the main motive for the Indian companies to repurchase shares. The share repurchasing companies in the sample (excluding those that have repurchased shares in the year 2017) have provided an average return of nearly 60 per cent during the year after the repurchase. The findings of the study can be used by fund managers and investors for stock picking.