| Abstract |
The paper investigates the impact of the imposition of a minimum buyback requirement on open market repurchases in India. We find that the regulatory change has led to a significant increase in the abnormal stock returns earned around buyback announcements. There is lower market timing through buyback execution,
accompanied by a change in the execution-style, implying a weaker instinct for opportunistic buybacks. Insiders increase their purchase of firms’ stock as against increased selling before the regulatory reform, during the buyback execution period. These findings suggest that the regulation has strengthened the information
role of open market buybacks. Furthermore, implying a significant decline in the option value associated with open market buybacks after the regulatory change, we also document an increase in the propensity of firms with lower stock liquidity to buyback through fixed price tenders. Our findings suggest that the regulatory change has lowered the “cheap-talk” motives associated with the announcement of open market buybacks.
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