A Research On The Relationship Between The Stock Repurchase With Mraket-Oriented Operation And The Wealth Effect

As an important mean of capital operation, stock repurchase has been wildlyused in mature capital market. It can be used by the management of the cooperation asa message of confidence to the market investors, and it can create wealth effects forthe shareholders. When the whole market is going downturn, the repurchase withlarge scale can help the market out of the doldrums to some extent. But for China, thestock repurchase of true sense appeared in the year of2005, and it can only beregarded as a newborn thing. However we has made a large progress in theregulations of stock repurchase. Two announcements issued by the China SecuritiesRegulatory Commision greatly influence its development. The first announcementissued in June,2005, allowed Chinses listed companies to buy back their own stocksin the open market And in the second announcement, which was issued inOctober,2008, market-oriented operation was allowed in stock repurchase.It should be said that the two announcements played important roles inimproving stock repurchase system of China Especially in2008, when themarket-oriented operation was accepted in Chinese market, stock repurchase in Chinabecame more similar to that in mature capital markets. While, can the development ofthe regulation make stock repurchase more effective in the stock market? The paperstudies the stock repurchase cases of Chinese listed companies from2005to2011,especially the cases after the market-oriented operation was accepted in2008,and test the wealth effects of stock repurchase, then analyses the effectiveness of thestock repurchase and the implementation of stock repurchase system.The paper use the average abnormal return(AAR) and the average cumulativeabnormal return(CAAR) around the stock repurchase announcement to measure thewealth effect of the stockholders. Firstly, we study the whole sample(stock repurchaseinvents from2005to2011) and find that there is a problem of information leaking inChinses stock repurchase, it has a negative influence on the wealth effect ofstockholders, Then we divided the whole sample into two sub-samples based onwhether the market-oriented operation was accepted, and begin the compatativestudy of the two sub-samples. As a result, we find that stock repurchases after themarket oriented operation was accepted produced more significant wealth effect,.While the persistence of the wealth effect was not significantly improved. Itshows that after the market–orient operation was accepted,, the recognotion of theshare repurchase by the stock market was enhanced. However, for the existence of thestock market’s imperfection, the stock repurchase is more often treated as aspeculation tool. Additionally, the study finds that the number of the companiesannouncing stock repurchase did not significantly increase after the operation wasaccepted.. It shows that the attractiveness of stock repurchase to the listed companieswas not largely enhanced. In a word, the market oriented operation has improved thewealth effect brought by stock repurchase. And there is still something to do inimproving the system in order to make the stock repurchase more effective. Lackingthe administrative control and strengthening the market supervision may become thefuther directions.