Research On The Effect Of Share Repurchase In Listed Companies

Share repurchase is a frequently occurring capital operation tool used by listed companies in the market.It was first proposed in the United States in the 1950 s and has been developed in the capital market since then,and the government has also formulated a large number of policies.China’s legal opinion on share repurchases was introduced in 1992,and in 2005 the state issued guidance on share repurchase reform,eliminating the difference between outstanding and non-issuable shares,and since then the shares repurchased are no longer just state-owned shares.With the gradual relaxation of the conditions for share repurchases,more and more companies are choosing share repurchases to achieve their own purposes.However,the implementation effect of share repurchases varies greatly from company to company due to different financial status,development prospect and managerial integrity.Therefore,the analysis of companies that have completed repurchases to find out the specific implementation effect and the problems that exist in them is beneficial for listed companies to develop more reasonable repurchase programs,improve the system of share repurchases in China,and give investors more suggestions about repurchases.Gree Electric,a leading company in the white goods industry,began its first share repurchase since the company’s listing in April 2020,after suffering from the epidemic and a continuous decline in its share price.This repurchase by Gree repurchased 8.73% of the company’s total share capital in one and a half years,and the repurchase amount totaled about 27 billion yuan,making it the largest share repurchase in the history of A-share.Therefore,this paper takes Gree Electric as the research object and uses the case study method to analyze the motivation and implementation effect of its share repurchase in depth.The case study section of this paper first briefly reviews the repurchase process of Gree Electric.Then,based on the signaling theory and principal-agent theory,we analyze the motivation of the share repurchase,and find that the main motivation is to improve the company’s share price in the future rather than to repurchase shares to implement equity incentives as announced in the announcement,and there are also motivations to optimize capital structure and reduce agency costs.Subsequently,the financial effects of the repurchase were analyzed in detail by financial index analysis and EVA evaluation method,and it was found that the share repurchase has a certain positive effect on the financial performance of Gree Electric,which can improve the profitability of the company,and also has a certain positive effect on reducing the agency cost and optimizing the capital structure of the company.In terms of market effect,this paper uses the event study method to carry out an in-depth analysis and finds that the company’s share price increases in the short term when the buyback announcement is released,but the market response gradually decreases as the number of buybacks increases.Finally,based on the conclusions of the analysis,three suggestions are made for listed companies to treat buybacks correctly,for regulators to strengthen supervision and for investors to invest cautiously.It is hoped that the research results of this paper will provide some reference value for other companies attempting to conduct share repurchases in the future.