We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
A Conceptual Paper on the Behavioral Pattern of Malaysian Public Listed Companies in Their Share Buyback Programs.
- Authors
Pang Wee Pat Winston
- Abstract
This conceptual paper intends to identify and analyze the reasons and motives that influence Malaysian Listed firms in their participation of share-buyback schemes. The study will focus on the 212 companies on Bursa Malaysia that had announced their decisions to buy back their own shares over a six-year period from 2010 to 2016. This is done with a view to establish why only 127 of the 212, which make up about 60% of the companies, actually carried out the buyback program, using data and companies' announcements to the Bursa Malaysia. The main aim of the study is also to examine the factors behind the peculiar buy-back patterns of Malaysian companies in relation to their Book to Market (BTM) ratios and the size of the companies. The analysis hopes to establish a view on why these companies opt to buyback less than 1% and doing it on a daily basis. The outcome of this paper will be helpful in the study of the need of the current restriction of 10% cap on buyback of shares and to assess the impacts of prevailing stringent rules on the treatment of treasury shares. Purpose: This conceptual paper intends to identify the reasons that motivate Malaysian listed firms in their participation of share buyback schemes. Design/methodology/approach: This paper hopes to carry out the two-step analysis in its findings and data analysis to derive acceptable conclusions for the main research questions. The first method involves the use of the standard event study methodology to analyse market reactions to the three announcements. The second method involves the use of multiple regressions to check the responsiveness of the event study results in the first analysis. Findings: This conceptual paper intends to provide an analogy to explain the peculiar motives of Malaysian buybacks outlined below; (1) To study the market reaction to the buyback announcements; This will indicate extent of information asymmetry on undervaluation for Main board and ACE companies. (2) To study whether the effects of concentration of ownership of companies affect decisions to buy back shares. Bursa Malaysia's requirement of shareholders' approval prior to share buybacks, family controlled companies with large entrenched shareholding structures have the ultimate decisions in share buybacks. Government GLCs run by political appointees may have less interest on share price performance than to fulfil specific objectives of government's agenda. (3) To analyze the long term effects of price and earnings sustainability after the share buybacks ; and The analysis would focus on abnormal return (AR) and long term cumulative abnormal return (CAAR) during the length of event period, to assess whether these companies would report positive returns. Research limitations/implications: This study has three limitations. First, this study is limited to the immediate announcement effect surrounding shares events. Besides signaling theory and information asymmetry, other underpinning theory of equity issuance can also affect share price. The second limitation is on the assessment for frequent and infrequent buybacks and to identify whether the frequency of buybacks has an effect on the long-term performance of the company. Similar studies have been done in U.S. market by Yook (2010) and Chan et al. (2007) and Korean market by Lee et al. (2005). They found that infrequent buybacks earned much better price performance than frequent buybacks. The third limitation of this study is the implication effects on the benefits of buyback to the interested parties, namely the companies. At this moment, in the Malaysian market, studies by Isa et al. (2011) and Wong et al. (2011) found no evidence of abnormal returns with respect to buyback volume. Practical implications: The practical implication of this study is to determine the effects of buyback on smaller companies. Even though Ramakrishnan et al. (2007) found an increasing number of small firms participating in buyback activities, there is weak evidence that relates to the value gained by small as compared to the larger firms. Thus, although the smaller firms are relatively undervalued, repurchasing shares may not benefit their long-term shareholders. Future studies may need to focus on the effects on smaller firms and the benefits they derive for their long term shareholders. Originality/value: Previous studies on share buybacks by Malaysian companies are mainly on signaling undervaluation of share prices and the eventual price effects on those buyback companies (Nasruddin and Angappan (2004), Mansor Isa (2011); Mohd (2013). Excess cash flow hypothesis is the prime motive for share buyback in most companies. These studies focus on examining the returns surrounding buyback announcements. Studies by Edward Wong et al. (2011) and Abdul Latif et al. (2013) however, focus on actual and long-run price performance of the companies. This conceptual paper attempts to analyze the buyback behavioral pattern and motives of Malaysian companies in relation to their market to book values and size of companies. This study will attempt to evaluate the effects and implications of the current 10% restriction on share buybacks and the accounting treatment of Treasury shares. As this study moves away from conventional attempts on price effects, it is hoped that the findings will form a basis for the regulators and investors to comprehend the reasons and factors that motivate Malaysian companies' buyback policies.
- Subjects
BURSA (Turkey); PUBLIC companies; INFORMATION measurement; REDEMPTION of securities; ABNORMAL returns; FINANCIAL market reaction
- Publication
Global Business & Management Research, 2019, Vol 11, Issue 2, p262
- ISSN
1947-5667
- Publication type
Article