Research On The Motivations And Consequences Of Invt’s Stock Repurchase

Stock repurchase first appeared in the US capital market in the 1950 s.It is the act of a listed company buying back its circulating shares in the securities market through its own cash or external debt.After decades of development,stock repurchase has become a basic system in the international capital market,and is a necessary means for listed companies to implement mergers and acquisitions,optimize governance structures,and stabilize stock prices.China’s early capital market laws and regulations were not perfect enough to ease the policy restrictions on stock repurchases.However,with the increasing demands and purposes of stock repurchase of China’s listed companies,the existing system has been difficult to match the development of China’s capital market.On October 26,2018,the Standing Committee of the National People’s Congress passed a special revision of the Company Law on stock repurchases which relaxed the application of stock repurchases,improved the decision-making procedures for stock repurchases,and established the treasury stock system.This encouraged listed companies to conduct stock repurchase.Therefore,in 2018,China’s securities market began the largest round of "repurchase tide".The total repurchase amount of A-share listed companies reached 61.443 billion yuan,an increase of 678% year-on-year.However,the implementation of the new policy has also brought new problems.There have been situations that insiders of listed companies have used stock repurchases for private gain,which has brought challenges to regulatory authorities.In the context of the new policy,whether there will be any new conclusions on the research of stock repurchases of Chinese listed companies,there is no final conclusion.Therefore,this article selects the case of INVT’s stock repurchase in 2018,and deeply studies the motivation and consequences of INVT’s stock repurchase.First,based on the company’s liquidity perspective,this article innovatively selects the two dimensions of financial flexibility and investment opportunities to construct a conditional matrix for stock repurchases,and then analyzes the rationality of INVT’s stock repurchases.Secondly,this article analyzes the internal motivation of INVT stock repurchases from three perspectives: signal transmission,opportunism,and takeover defense.Finally,this article studies the market and financial effects of INVT stock repurchases.The following conclusions are drawn through research:(1)INVT has more investment opportunities and insufficient financial flexibility,and its cashholdings and remaining debt-raising capacity are not sufficient,so its stock repurchase conditions are insufficient.(2)Although the motivation of INVT stock repurchases has a component of transmitting signals,its main motivation is still to protect the interests of insiders of the company.(3)When INVT conducts stock repurchases under insufficient conditions,it brings negative market and financial effects to the company.The case of INVT is just a microcosm of the current chaos in stock repurchases.Based on this case,this article proposes the following suggestions: listed companies should improve corporate governance and prevent insider opportunistic behavior;regulatory authorities should also strengthen supervision and timely improve the corresponding policies;the majority of small and medium investors should be aware of the negative effects of stock repurchases and should not blindly follow the hype.