Buy Back and Its Impact
Impact of buyback of shares on EPS
An Empirical Analysis Rekha Raheja (Assistant Professor at Hindu College, Sonipat)
Abstract:
Buy back of own shares by the companies was prohibited under section 77 of Indian Companies Act 1956. But thereafter, in 1988 Government gave a green signal to this banned activity, as a result of which Government of India issued an ordinance on 31st October, 1988, allowing purchase of own shares by the companies. Share buy back led to reduction of share capital, thus expected to increase in earning per share of shareholders. The aim of this study is to investigate the impact of buy back on earning per share (EPS) of 25 public limited companies listed on Bombay stock exchange during 2005-09.
Introduction
Stock buy back also known as “Share repurchase” is a company’s buying back its shares from the market place. This practice is, however, totally opposite of the issue of shares, as under it companies purchase its own shares from its existing shareholders at a specified rate. The offer can either be mandatory or voluntary to investors. This concept is new to Indian companies but the concept was there in the Western world for the decades. In general, a company is not allowed to buy back more than 25% of the existing capital, at a time. According to section 77 A (5), the buy back may be made: 1) from the existing shareholders on a proportionate bases ; or 2) from the open market; or 3) from odd lots; or 4) by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.
Objectives of the Study
The study has been undertaken with the following objectives in mind:
1) To examine the impact of buy back of shares on Net profits of the companies. 2) To examine the impact of buy back of shares on EPS of the companies.
Research problem and Scope
An Empirical Analysis Rekha Raheja (Assistant Professor at Hindu College, Sonipat)
Abstract:
Buy back of own shares by the companies was prohibited under section 77 of Indian Companies Act 1956. But thereafter, in 1988 Government gave a green signal to this banned activity, as a result of which Government of India issued an ordinance on 31st October, 1988, allowing purchase of own shares by the companies. Share buy back led to reduction of share capital, thus expected to increase in earning per share of shareholders. The aim of this study is to investigate the impact of buy back on earning per share (EPS) of 25 public limited companies listed on Bombay stock exchange during 2005-09.
Introduction
Stock buy back also known as “Share repurchase” is a company’s buying back its shares from the market place. This practice is, however, totally opposite of the issue of shares, as under it companies purchase its own shares from its existing shareholders at a specified rate. The offer can either be mandatory or voluntary to investors. This concept is new to Indian companies but the concept was there in the Western world for the decades. In general, a company is not allowed to buy back more than 25% of the existing capital, at a time. According to section 77 A (5), the buy back may be made: 1) from the existing shareholders on a proportionate bases ; or 2) from the open market; or 3) from odd lots; or 4) by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.
Objectives of the Study
The study has been undertaken with the following objectives in mind:
1) To examine the impact of buy back of shares on Net profits of the companies. 2) To examine the impact of buy back of shares on EPS of the companies.
Research problem and Scope
References: • Gurpreet Kaur Dhatt, “Impact of Buy back Announcement on Share price in India” 2010. • Bhabatosh Banerjee, Tanupa Chakraborty, “Impact of buyback on EPS an empirical Analysis”2002 • Santhirasegaran.Nadarajan, “Eurpean Journal of Social Science”- Volume1 November 3, 2009 • www.scribd.com/doc/29476667/Buy back of shares • www.indiamba.com/occasional-papers/op78/op78.html • www.bseindia.com/mktlive/market-summ/buyback/display-hist.asp