MISLEADING OR BENEFICIAL? ASSESSING THE EXPLOITATION POTENTIAL OF STOCK BUYBACK ANNOUNCEMENTS IN THE MALAYSIAN STOCK MARKET

Abstract:In the traditional sense, stock buyback announcements are generally perceived as advantageous news. However, with the evolution of the capital market, some scholars argue that such declarations possess the potential for exploitation as a means to artifi cially infl ate stock prices, thereby deceiving investors. Consequently, within the framework of the Effi cient Market Hypothesis and the Theory of Asymmetric Information, we employed an event study approach to empirically investigate 30 listed companies in Malaysia that announced stock buybacks in the before June 2022. To fortify the robustness of our research fi ndings, we employed Market Model and the Fama-French Three-Factor Model to estimate Average Abnormal Returns and Cumulative Average Abnormal Returns. The outcomes indicate that stock buyback announcements are still regarded as favorable news in the Malaysian stock market, bestowing investors with signifi cant positive average cumulative abnormal returns. Nevertheless, the Malaysian capital market may witness premature leakage of stock buyback information, thereby accentuating the existence of information asymmetry. We contend that corporate leadership can harness stock buyback announcements as a mechanism to stabilize stock prices and infuse confi dence in investors. Concurrently, market regulators should augment transparency and regulatory measures to ensure fairness among all market participants.

 

Keywords: Buyback Announcement; Event Study Method; Average Abnormal Returns; Cumulative Average Abnormal Returns; Malaysian Capital Market