Study On The Market Effect And The Performance Of Stock Repurchases In China

Stock repurchase is a hehavior of listed companies buy back a certain amount common stock from the stock market, using the accumulation of surplus income funds or debt financing, though certain legal procedures and efficient approach. In foreign developed capital market, stock repurchase has been an effecient method of capital operation and is widely used to the alternative of cash dividend, optimize the capital structure, improve corporate governance, improve the value of the company and coordinate equity incentive plans.With the development and maturity of China’s captical market, stock repurchase which is an important financial instrument also draws attention of China’s listed companies and will be widely used by them.This paper takes A-share stocks from January 1,2008 to June 30,2014 which have stock repurchase announcement as samples, first, we elaborate the basic theory of stock repurchase, and then we analyze the status of China’s stock repurchase. Then we use the event study method and the principal component analysis respectively to test the short market effect of stock repurchase and the long-term performance of repruchasing companies. The main conclusions are as follows:(1) from the side of development process of stock repurchase in China’s capital market, object of stock repurchase has turned from non-tradable share to tradable share, form of stock repurchase has turned from directed stock repurchase to open-market stock repurchase, motivations of stock repurchase has turned from improving equity structure, solving the problem of large shareholders occuping too much funds to improving company value and cooperating with equity incentive plan. (2) Listed companies’ stock repurchase has positive short market effect in China, and the repurchase event which aims to improve the company’s value has larger market effect than to cooperate with equity incentive plan, and both motivations of repurchase have the phenomenon of information disclosure.(3) Stock repurchase can improve the companies’ long-term performance, but in the repurchasing year, the performance of the company will become worse. In the first year after the repurchasing, the financing performance of the company will adjust to the level of the previous year, and improve markedly in the second year after the repurchasing.