EFFECTS OF COMMON STOCK REPURCHASES ON SHAREHOLDER AND FIRM VALUES: EMPIRICAL EVIDENCE FROM 36 LISTED COMPANIES IN MSEB

By

LAW MEI CHING

ABSTRACT

Malaysia implemented the common stock repurchase system on September 2, 1997. Recently, the common stock repurchase has become an important way of distributing earning to shareholders even though the common stock repurchase is relatively a new phenomenon in Malaysia. This paper examines the common stock repurchase announcement effects on the shareholders and firms values. By investigating the effects on the shareholder and firm values, this research is determined the repurchasing firm’s return on equity and debt-to equity ratios before and after the common stock repurchases. Beside this, the stock price performances surrounding the common stock repurchases are tested by using the average abnormal return and cumulative abnormal return analyses. The impacts of different size of firms on stock return also investigate in this study. The empirical results of this study show that the return on equity and debt to equity ratios of the repurchasing firms have a significant relationship with the common stock repurchases although the return on equity and debt to equity ratios do not increase after the common stock repurchases. Furthermore, on average, repurchasing firms do not exhibit superior abnormal performance either initially or over long run when they make actual common stock repurchases. This finding show that the stock price performances remain the same surrounding the common stock repurchases announcement days. In addition, cumulative abnormal returns around the three days announcement period are significant, positively related to the firm size. Over a long run, there is strong evidence that the small firms can deliver superior performance to long term shareholders. The results of this study basically do not consistent with previous researches that done in overseas due to the short term period of the study.

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Bachelor of Arts (Hons) In Finance

December 2003

Number 1