Signaling doubts or confidence: new insights on share repurchases

Purpose This study aims to investigate how cash holdings and growth opportunities influence market reactions to share repurchase announcements in a high-growth emerging market. We also examine the distinct impact of repurchase modes, specifically fixed-price tender offers and open-market repurchases, on this relationship. Design/methodology/approach We use panel data regression to analyze 371 Indian repurchase announcements from 2013 to 2023. Event study methodology is used to capture the market reactions. Findings We find an overall positive market reaction to share repurchase announcements, with similar initial responses across both modes. Cash-rich firms announcing share repurchases trigger a negative reaction, which turns positive when firms also have higher growth opportunities. However, over time, the market differentiates between repurchase modes, favoring open-market repurchases, particularly by cash-rich firms with lower growth opportunities. Practical implications Our findings help managers strategically align share repurchase decisions, particularly in choosing repurchase modes to enhance market perception. Regulators require firms to disclose the reasons for choosing each repurchase mode, reducing information asymmetry and boosting investor confidence. Investors shall use these insights to optimize decisions and returns. Originality/value This is among the earliest attempts to explore how cash holdings and growth opportunities shape market reactions to repurchases in a high-growth emerging market, contrasting with earlier research on developed countries with more low-growth firms. Unlike many studies focusing on either open-market repurchases or tender offers, we examine both modes collectively and separately, offering a comprehensive perspective.