ADOPTION AND TRANSFORMATION OF SHARE BUY-BACK

Adoption & transformation Share Buy-back in EU & US's Experiences to Vietnam Environment



Adoption & transformation Share Buy-back in EU & US's Experiences to Vietnam Environment

Introduction

The financial health of a country prior to adoption and its flexibility in terms of asset size were also reported to marginally moderate the ability to realise economic returns. (Santos & Stewart 2003 pp.27-41) examined the extent to which a sample of 50 share buy-backs-adopting countries has realised a set of theoretically expected benefits due to share buy-backs implementation. In a pre/post analysis with a matched sample of nonadopting countries, they report mixed results on a number of financial performance measures. share buy-backs-adopting countries did not perform better than nonadopting countries on a number of indicators, while on other performance measures, nonadopting countries improved their performance relative to the sample of countries adopting Shares buy-backs.

To improve the profitability of group practice ownership, some developing countries like Vietnam have structured arrangements to include a form of citizen equity. An equity incentive is designed to encourage citizen behaviour that supports business operations by tying financial reward to overall organisational performance. Research reports mixed results with regard to the effect of Shares buy-back adoption on a country's long-term financial performance. (Terry 2006 pp.169-80) collected a sample of share buy-backs-adopting country Vietnam as an example and examined the longitudinal impact of share buy-backs adoption on country performance. Their results indicate that nonadopters performed worse than adopters during the system post-implementation period.

Hale (2005) employed a vendor-specific sample and report that countries investing in share buy-backs show higher performance across a wide variety of financial metrics. The same study lacked mid- and long-term post-implementation data, however, and identified the need for future research on the long-run impact of Shares buy-back adoption. In addition, the (Edgar & Geare 2005 pp.534-49) studies have also identified the need for additional research in the area given the reported inconclusive results.

According to Wilson (2004) share buybacks do not automatically increase shareholder value, of course. A buyback makes sense only if the directors conclude that the company's shares are currently undshare buy-backsriced by the market. The empirical results of share buybacks are quite mixed. Buybacks have generally increased the stock price of the acquiring company in certain periods but not in others. In recent years, share buybacks have tended to increase the company's share price in certain sectors (technology, health care, and utilities) but not in others (energy, materials, and telecommunications).

The much more reliable way to increase shareholder value is to raise cash dividends. According to Citigroup research, stocks in the top quintile for dividend growth on average outperformed those in the bottom quintile by 12.6% from 1990 through 2006. Companies that raised dividends on average outperformed the market by more than 4% in the year they were raised, and companies that started paying cash dividends for the first time on average outperformed the market by more than 5% in that initial year.

A recent change in tax law has made the argument for ...