Study On The Motivations And Short-term Market Reactions Of Share Repurchases Of A-share Listed Companies

Share repurchase refers to the behavior that listed companies use their own funds or raise funds to buy back the shares issued by the company in the market at a certain price.The shares after repurchase can be used to cancel or implement equity incentive plans.It has obvious advantages in many aspects such as stabilizing stock price,adjusting financial leverage and optimizing equity structure,and has gradually become an important financial instruments of both the domestic and foreign capital market.Before 2005,the number of cases of share buyback in China's A-share market was relatively small,most of the repurchases are non-tradable shares.With the release of public share repurchase,share repurchase is gradually used in the market of our country.On October 26,2018,in the case of A-share market downturn,the 13 th National People's Congress revised Article 142 of the company law about Share repurchases,including expanding the scope of share repurchases,simplifying decision-making procedures,etc.,in order to stabilize the operation of the capital market.After the revision of the company law,the number and scale of repurchases in China's A-share market have increased significantly,setting off a boom of buybacks.Under such background,this study employs multiple statistical methods and event study methods to explore the potential motivation and short-term market reaction of share repurchases of A-share listed companies from January 2015 to December 2019,as well as the changes of these motivations and reactions before and after the revision of the company law.The conclusions are as follows:(1)the main motivation of buyback of Listed Companies in China includes the degree of undervaluation,level of free cash flow and financial situation,Equity concentration and dividend distribution have no significant impact on share repurchases.(2)After the revision of the company law,listed companies are more likely to repurchase for the purpose of optimizing the capital structure;in the comparison among enterprises of different nature,private enterprises with abundant cash flow and higher equity pledge ratio are more likely to repurchase;(3)In the study of short-term market reaction,the researcher finds that listed companies tend to buyback when the performance of stock price is poor in the early stage,and the repurchase announcement has a relatively positive market reaction in the short term;compared with the listed companies that repurchased before the amendment of the company law,the companies that repurchases after the amendment have a worse market performance and a higher degree of volatility before the announcement,at the same time,these samples have a more positive short-term market response during the announcement period.(4)In addition,the study finds that the short-term market response of announcement will be different due to different industry attributes,Industries with higher market attention or lower valuation levels received a more positive market response on the announcement day.Specifically,the market reaction of manufacturing industry,wholesale and retail industry and construction industry is more intense on the announcement date.