The effects on earning from announcement of open market corporate share buyback: an empirical study on Malaysian stock market
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Date
2010
Authors
S.R.Nadarajan, Santhirasegaran
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Abstract
This study was prompted by the dramatic increase in the corporate finance activity of shares buyback in the open-market in Malaysia. The study examined three earnings metrics of Bursa Malaysia listed firms before and after buyback announcement to investigate differences in those earnings metrics among firms that targeted a large proportion of shares to be repurchased and firms that targeted a smaller repurchase. The study examined 70 companies involve in buyback announcements from 2002 through 2006 that expected to complete the buyback with internal funds. The average buyback target of the sample was 6.89%, consistent with 7% average observed in a landmark study by Stephens and Weisbach (1998). For this study, the three earnings metrics that were measured are cash flow per share (CFPSP) , earnings per share (EPSP) and dividend payout (DPOP). The percentage change in value of these three metrics before and after buyback announcement were recorded. Base on this investigation of the 70 companies, it was found that firms that announced their share buyback program do exhibit significant changes in their earnings metrics before and after the announcement. In addition, the findings suggested that a larger buyback target had more of an effect on firm’s post-announcement earnings than a smaller buyback target.
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Keywords
Business Administration , Corporate Share Buyback , Malaysian Stock Market