Shareholder value creation through buyback of equity: An earnings per share measurement analysis

Abstract

Stock buybacks reduce by nature the number of outstanding shares. The decrease in the number of the outstanding shares increases the earnings per share. Thus, each remaining outstanding share represents a slightly higher percentage of the company to the shareholder. The sample of the paper consists of 32 buyback programs announced by 27 Indian companies and 5 multinational companies belonging to 21 industries during the period 2005-2010. The paper finds that 78 percent of the buyback programs have registered an enhancement in the earnings per share while the earnings per share of the remaining 22 percent decreased. The outcome of the paper agrees with the findings of the research work done in the past. Therefore, the study concludes that the stock buybacks enhance the earnings per share and thereby create value for the shareholders.