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The Influence of Buyback on the Value of the Firm at the Emerging Markets
The paper is devoted to an analysis of the process of buyback, which is now becoming a popular process among the companies that are choosing an appropriate payout policy. Share repurchase became popular in Europe and the USA in 1980, while in Russia – in 2005.The main objective of the paper is to analyze an influence of buyback on the value of the company in Brazil, Russia and South Africa. The theme is quiet topical to investigate, because each company wants to maximize its value.The sample, which is used for analysis, consists of 117 observations of buyback, where 57 are related to Brazil, 42 – to Russia and 18 – to South Africa.The research is divided into two stages: the detection of the influence of the moment when the buyback is announced on the abnormal return of assets using event study; and then the analysis of the determinants of cumulative abnormal return which appear because of buyback with the usage of linear regression. B/M-ratio, financial leverage and the portion of cash in total assets – are the determinants observed here. These factors are the indicators of the signals to investors in the market, capital structure and the distribution of FCF respectively. According to the existing literature, these three motives are the main for repurchasing shares.The result of the first stage of research is the proof that buyback does influence the abnormal return of assets, and the value of the company.The second stage shows that B/M-ratio, financial leverage influence CAR while the portion of cash in total assets does not show any impact on CAR.Moreover, the research shows that the influence of these three factors varies between the samples divided by the value of B/M-ratio, financial leverage and portion of cash in total assets into two groups: with high value of factor and low. The results show not only the difference caused by the presence or the absence of the impact of the factor, but also the difference in its character. This means that the companies with high and low value of B/M, financial leverage or the portion of cash in total assets have the different relation of these factors on CAR and that is why should implement different payout policies. Also the research shows the differences between 41-days event window and 3-days one, and the influence on CAR of 41-days event window is higher, than on CAR of 3-days event window.One of the results is the negative influence of undervaluation of shares in the market on the cumulative abnormal return of them.