A Study Of The Opportunistic Motives And Effects Of Share Repurchases By Wanfeng Aowei

Share repurchases emerged late in China and have not been effectively developed in China for a long time.With the improvement of China’s policies and laws on share repurchases,this tool is favored by more and more listed companies in China.However,with the rise of the buyback boom in the A-share market,a number of problems have emerged,which harm the interests of investors and also affect the healthy development of the capital market.In order to protect the interests of investors and promote the orderly development of the share repurchase market,this paper takes Wanfeng Aowei as the research object to study its opportunistic motives for repurchase as well as the repurchase effect.In terms of motivation analysis,this paper first verifies the declared motives of Wanfeng Aowei’s repurchase and finds that the motives of Wanfeng Aowei’s share repurchase are not as serious undervaluation of the company as it claims.The motivation identification framework is then built to analyze the opportunistic motives of Wanfeng Aowei’s share repurchase from three aspects: behavioral conditions,financial situation,and behavioral events.Among them,since the buyback of Wanfeng Aowei is initiated by the controlling shareholder,the authors start from behavioral conditions and analyze the influence of the controlling shareholder on the board of directors and the shareholders’ meeting of Wanfeng Aowei;then analyze the financial situation of Wanfeng Aowei before the buyback to determine whether its financial situation can support the company to make share buyback;finally,observe the behavioral events of the controlling shareholder before and after the buyback,such as whether the controlling shareholder has a high percentage of Lastly,we observed the behavioral events of the controlling shareholders before and after the repurchase,such as whether the controlling shareholders had a high percentage of share pledges,shareholding reduction and other significant events before and after the repurchase.The study found that Wanfeng Aowei’s share repurchases were opportunistically motivated by the following two factors: firstly,Wanfeng Aowei wanted to avoid the controlling shareholder’s equity pledge risk through share repurchases,and secondly,to cooperate with the controlling shareholder’s shareholding reduction to cash out.After discovering the opportunistic motives of the case company,the market effect and financial effect of Wanfeng Aowei’s opportunistic repurchase were further analyzed.From the market effect,Wanfeng Aowei only got a short-lived positive response in the first two repurchases in the short term,and the long-term company’s share price was not improved;from the financial effect,the share repurchase aggravated Wanfeng Aowei’s already poor financial situation,and even made the enterprise value diminished In terms of financial effects,the share buybacks exacerbated Wanfeng Aowei’s already poor financial situation and even diminished its corporate value.This paper also provides recommendations to prevent such opportunistic share buybacks,which send false value signals,at the regulatory level,at the company level and at the market investor level.It is hoped that this paper can help market investors better identify the true motives of share repurchases by listed companies and protect investors’ interests;at the same time,it can give certain insights to market regulators,listed companies and investors in order to promote the orderly development of the capital market.