Factors that motivate share buybacks : evidence from the Malaysian Listed Companies / Akma Hidayu Dol@Abdul Wahid

This study identifies the underlying constructs of the motivating factors of share
buyback decisions of Malaysian companies to share buybacks from 1999 to 2005.
This study employs factor analysis to seek variables (indicators) on the factors and
conform to what are the underlying motivations for companies to buyback shares.
The indicator variables are selected on the basis of prior literature and factor
analysis is used to see if these variables are the underlying constructs that motivate
companies to exercise share buyback. This study reveals indicator variables like
return on equity (ROE), earning per shares (EPS), return on assets (ROA) and market
to book value of equity (MB) are the underlying constructs for improvement in the
operating performance of the buyback companies. This study also reveals that
intangible assets (INTANG), capital expenditures (CAPEXP) and sales (SALES) are
the underlying constructs for undervaluation of companies' share prices. The results
suggest that share buybacks merely a result of decrease in the denominator i.e.
numbers of outstanding shares and intangible assets are source of undervaluation of
the companies' share prices which is consistent to results of the prior studies. This
suggests that companies' potential earnings are merely generated from intangibles.
As a result, investors must interpret the earnings with caution focusing on the
potential earnings of a buyback company.