Study On The Causes And Economic Consequences Of Stock Repurchase Of Highly Leveraged Enterprises

The stock repurchase is a kind of capital operation method which is popular in the capital market of our country at present,its means that repurchasing outstanding stock of a company.Share repurchase can be priced in two ways,one is through agreement and the other is through public bidding.The shares eventually bought back can be written off or retained as inventory shares.The stock repurchase appeared earlier in the stock exchange of western developed countries.Therefore,the study of stock repurchase in the western theoretical circle also started earlier.At the beginning of the emergence of stock repurchase in China's securities market,stock repurchase is more widely used in the competitive field of state-owned shares withdrawal,and the conditions for implementing stock repurchase are stringent.With the increase of repurchase cases in China's capital market,the academic circle has more research samples and gradually realized the importance of stock repurchase to the stable development of the capital market.In recent years,with the gradual opening of the national policy on share repurchase,this mode of capital operation has attracted more and more attention.Therefore,this paper takes the buyback of XINHU ZHONGBAO CO.,Ltd.in 2016 as the research object,The reason why XINHU ZHONGBAO CO.,Ltd.is selected as the case study object is that it carries out buyback in the case of high debt ratio.Through the analysis of its motivation and economic consequences,exploring the role of stock buyback in promoting the stable development of the market and the impact on the company's own finance.Based on the development of stock repurchase at home and abroad,this paper puts forward that the significance of this study is to provide reference for enterprises with high debt ratio to implement stock repurchase.Secondly,it summarizes the previous researches of scholars,further clarifies the research focus,and takes the principal-agent theory,signal transmission theory and free cash flow hypothesis as the writing basis.Thirdly,this paper introduces the detailed process of the buyback event of XINHU ZHONGBAO CO.,Ltd.studied in this paper,and USES case study method,literature study method,comparative analysis method and event study method to analyze and evaluate the motivation and effect of the stock buyback of XINHU ZHONGBAO CO.,Ltd.,a highly leveraged enterprise.The real motivation of stock repurchase is explored from the perspectives of company share price,free cash flow,company equity structure and response policy.Finally,based on the financial data and market performance before and after the buyback,the effects of stock buyback on the capital market and corporate finance are further studied.This paper draws the following conclusions through research: firstly,the motivation of stock repurchase comes from many aspects.One is to maintain the rationality of the company's stock price and prevent the irrational decline of the company's stock price.Second,it is motivated by enhancing the control right of the major shareholders.Third,in response to the national "five choose one" policy call.What's more,in the short term,share buybacks have a positive effect on the market.In the long run,stock repurchase will stabilize the stock price for a long time.Thirdly,the financial situation of highly leveraged enterprises will be negatively affected by stock buybacks.In the short term,the company's solvency will be negatively affected to some extent,but in the long term,the impact of share repurchase will gradually reduce.At the same time,from the perspective of financial indicators,the buyback event will reduce the company's profitability,operation ability and growth ability to some extent.Stock buybacks consume a large amount of its own capital,which will cause the company to lose part of the profits from normal investment and operation.Finally,based on the evaluation of the stock repurchase case of XINHU ZHONGBAO CO.,Ltd.this paper proposes some enlightenment from multiple aspects.Firstly,the government regulatory departments should carry out further supervision on the stock repurchase,and at the same time standardize policies to prevent the occurrence of information leakage,illegal cash out of major shareholders and other phenomena affecting the market balance;Second,the company's executives should also set the time limit and amount of the buyback properly,so as to give full play to the positive effect of the scheme and reduce its negative effect;Third,the company can build the image of corporate integrity by completing stock repurchase commitment on time and in quantity;Finally,before and after the buyback,the company should specify the source of funds used in the stock buyback to better protect the interests of creditors.