Navigating the Market Environment: Share Return Dynamics Around Buyback Announcements in India

Abstract

The present study examines the impact of buyback announcements on shareholder returns in India within the evolving capital market environment, shaped by regulatory frameworks, investor sentiment, and market efficiency considerations. Using an event study methodology, a dataset of 294 buybacks from 1993–2023 is analyzed. The study employs cross-sectional test, crude dependence test, BMP, and Patell test to assess abnormal returns surrounding the event. The findings reveal statistically significant Average Abnormal Returns (AAR) on the announcement day, one day after, and on the eighth day post-announcement. The Cumulative Average Abnormal Returns (CAAR) are positive and statistically significant across multiple event windows, suggesting a sustained post-announcement effect in the capital market environment. However, the Patell test results indicate that risk-adjusted abnormal returns are not statistically significant. These findings provide insights into the dynamics of the Indian capital market environment, highlighting how regulatory conditions and investor behavior shape the market’s response to buyback announcements. From a policy perspective, the results suggest that regulators should closely monitor the implications of buybacks on market efficiency, while firms may strategically use buyback announcements to signal value and enhance shareholder wealth in an increasingly competitive environment.