Share Repurchases in Vietnam: Why Do Firms Repurchase Shares?

Abstract

This paper empirically investigated the effect of share repurchases announcement on the Vietnam stock market. Using a sample of share repurchases for the period 2005-2014, this paper provided evidences that the cumulative abnormal return (CAR) of firms’ stock repurchases gradually increased from -30 to 30 days around the stock repurchase announcement day. Examining if the announcement of stock repurchases would have more effect on small firms compared to large firm, this study found that there exist a temporary small firm effect but not over all period. To determine the motives of firms in implementing share repurchases, this study checked the CAR by using prior return, net operating cash flow (NOCF) and degree of leverage. The result supported the undervaluation hypothesis. In order to confirm this result after controlling firm characteristic variables, a regression analysis was used. From the regression results, it confirmed that the coefficient of EBIT is statistically significant at 5% level. This implies that undervaluation is the main reason why firms repurchase its stocks.