Research On Stock Purchase Of Chinese Listed Company

Stock repurchase really has really emerged in the1970s when the government imposed restrictions on the listed company paying cash dividends, so the company management used the way of stock repurchase instead of cash dividend. Later, after decades of development, the stock repurchase has now become an important means of capital operation in western developed capital market. Back to China, our country’s capital market is not mature, and the policies on the stock repurchase are very strict, so that our country’s stock repurchase is still in the initial stage of development. Because of the number of samples available for study are so small, so the domestic researches on the stock repurchase are not enough. What’s more, as the number of stock repurchase in China has gradually increased in recent years, the persuasion of previous study has been greatly reduced. So, a comprehensive, deep and systematic research is very needed for the development of our country’s stock repurchase.The structure of this article is as following:First of all, according to the different features of share repurchase of listed companies, this article divided the development of stock repurchase of listed companies into three periods:early period (from1992to June2005), medium period (from June2005to September2008), recent period (from September2008).In each period, this article analyzed the feature of stock repurchase of listed companies in detail. Also we described some typical cases of stock repurchase of listed companies in every period. After those analyses, the readers can directly understand the history of our country’s stock repurchase and the present development of stock repurchase in China.Secondly, after analyzing all the domestic stock repurchase cases, we found that there are four main motivations of stock repurchase in China. That is,①to reduce the state-owned shares,②to tie in with the split share structure reform,③ to maintain and enhance the company’s stock price,④to support the implementation of equity incentive plan. Particularly, to maintain and enhance the company’s stock price is the most important motivation of stock repurchase in China.Then, this paper used Event Study to analyze the market response to the announcement of stock repurchase. In this paper, the event is the listed company announcing the plan of stock repurchase. If the market regard the event as a good news, the company’s share price will go up, we can detect a positive AAR; If the market ragard the event as a bad news, the company’s stock price will fall, we would detecte a negative AAR or AAR equals zero. Therefore, AAR and CAAR are used to judge the market effect of the stock repurchase. The empirical results show that:①The announcement of stock repurchase can bring positive cumulative average abnormal profit rates. That is, the market effect is positive.②The securities market in our country exists phenomenon of information leak. We can see the average abnormal yields have been significantly positive in prior to the announcement of the buyback.③After the listed companies complete its stock repurchase, their performances get better than before and the value of those companies are subsequently improved. In addition, the author investigated three different kinds of stock repurchase with different motivations. The result shows that:①From the perspective of the market reaction to the stock repurchase, the stock repurchase to tie in with the split share structure reform coveys a strongest signal to the market; the stock repurchase to support the implementation of equity incentive plan has a relatively weak signal transmission effect; the stock repurchase to maintain and enhance the company’s stock price has great volatility on the signal conveyed.②From the perspective of those listed companies’ performance after the repurchase, the companies who want to tie in with the split share structure reform, their profitability has been improved obviously. The companies who want to enhance the share price, their profitability have fallen. The companies who want to implement equity incentive plans, their profitability has not been significantly improved.To sum up, in this paper, the study of the stock repurchase has made a comprehensive and objective analysis, through the combination of qualitative and quantitative analysis. As we can see, some conclusions have been made in this paper previous. After carefully study and analysis, we found some western advanced and mature research theory is not a good guide to the stock repurchase in China. This is mainly because the domestic listed companies are lack of thorough understanding and practice standard operating procedures of stock repurchase. What’s more, our country’s social and economic environment is very complex to carry on stock repurchase. But, it is worthwhile to note that many domestic stock repurchase cases exist the phenomenon of information leak. This reminds us that the domestic legal regulation is still very weak, rules and regulations is not sound and the related legal system has not been built up. Therefore, this paper puts forward some suggestions:to perfect the information disclosure system and supervision system, to let the listed company have a correct understanding and a reasonable use of share repurchase, to improve the funding sources on share repurchase and the provisions of the payment.At present, the listed companies only use few functions of share repurchases in our country. The uses of stock repurchases focus on maintaining and improving are the most important motivations in our country nowadays. However, some other functions are used too little. I hope that, through this paper, more and more investors can have an all-round understanding to the stock repurchase, so as to promote the further development of stock repurchase in China.