The Wealth Effects of Share Repurchases in Malaysia

Abstract

This study aims to assess whether buyback activities in Malaysia are able to provide any economic benefits to shareholders both in the short-term and in the long-run. Specifically this study investigates the price effects on: (a) the announcement surrounding the repurchase intentions and implementation dates, (b) factors affecting the price effects on implementation dates and (c) long-run price effects subsequent to repurchase implementation. Using event study methodologies, this study finds no significant immediate price reactions surrounding repurchase intention dates. However, there is significant evidence of positive abnormal returns in days –5 to +5 surrounding the announcement of repurchase implementation. As for the factors affecting abnormal returns, this study finds that abnormal return responds positively to better prior price performance, dividend yield, directors’ holdings, and fraction of shares repurchased. However, abnormal return responds negatively to the previous amount of cash held, reported earnings per share, and market-to-book value. Using a three year period as a measure of long-run, this study finds that there is no evidence that repurchasing firms experience superior or inferior price performance. This is one of the first studies in Malaysia to examine the long- run wealth effects of share repurchase.

 

Keywords: Share buybacks, shareholders’ wealth, corporate finance, long-run performance, emerging, Malaysia.