The Influence of Motives of Share Repurchase on Market Reaction to the Repurchase Announcement in the Emerging Capital Markets

The paper analyze the effect of share repurchase motives on decision to conduct repurchase, on the repurchase size and on the market reaction to the announcement of repurchase in emerging capital markets. The study was conducted on a sample of 430 announcements of the shares repurchases in the BRICS countries in 2000-2015 period. According to the results of empirical research, there is a positive market reaction to the announcement of the shares repurchases, and for small companies with a low Tobin's Q its reaction is higher. As a result of logistic regression, analyzing the company's decision to conduct the repurchase, and of tobit regression, analyzing the size of repurchase, the influence of the motive of shares underestimating and the capital structure adjusting have not been proven. However, the motive of the presence of excess capital was confirmed: the more the company has free cash flow, the greater the likelihood of repurchase and the larger the size of repurchase. According to the results of OLS regression, analyzing the impact of motives of repurchase on the market reaction to the announcement of repurchase in the event window (-25, 25), all three shares repurchase motives were significant: the market interprets the shares repurchase as a signal of an underestimation of the shares and positively responds to repurchase, thereby correcting the prices; when companies have excess cash, they are buying back own shares, providing to the market a positive signal that they pursue goals of shareholders, rather than to increase the compensation of management or invest in unprofitable projects; market appreciates the repurchase as a tool that allows the company to reduce the distance between its capital structure and average capital structure in the industry, regarded as a target level. The result of testing of regressions in other events windows: the model is robust and the results can be used for the interpretation of dependencies.