Share buybacks have become a common event in thefinancial markets worldwide. In a share buyback programme, the companydistributes the excess cash flow among the shareholders by way of repurchasingits own shares, generally at a premium. Despitebecoming an important corporate practice, there exists a paucity of systematicstudy regarding the motives, nature and impact of buyback on share prices ofrespective companies.

 Sharebuyback, also known as repurchase is the purchase by a company of itsoutstanding shares in the market that reduces the number of shares in the openmarket. The most common reason a company buys back its stock is to make theshares look more attractive to investors by increasing its earnings per sharebecause the number of shares is reduced. A buy back allows companies to investin themselves by reducing the number of shares outstanding on the market thusincreasing the proportion of shares owned by enduring investors. Issuers’ mainreasons for repurchasing some its shares are as a means of putting cash intothe hands of specific shareholders, as opposed to distributions or dividends,which pay out to shareholders as a whole. The other reason is as a means ofincreasing the market value of its shares or the earnings per share and also asa means of consolidating voting power in the hands of certain largeshareholders in order to protect the company against takeover threats.  Thereare four ways in which companies can repurchase its shares through; Open marketpurchases, issuer tender offers, privately negotiatedrepurchases and structural programs also known as accelerated share repurchase.Essentially,some of the key benefits of a share buyback program to a listed companyinclude; appreciation in stock price due to an increased demand for the companyshares, prevents companies from hoarding cash, returning capital toshareholders in a more tax efficient manner than declaring dividends, offsettingthe dilutive impact of a merger and acquisition activity and acts as amarketing strategy to potential and current company investors.Toinvestors, share buy backs is an indication of a boost in share prices, risingdividends, better earnings per share and less excess cash.

On the flip side,share buyback programs also pose some risks to an investor where sometimes aninvestor could experience sinking dividends because of a listed companyspending a substantial amount of its capital buying up shares and then cuttheir dividend as a result. Additionally, a repurchase program could act as acover for stock handouts in the case of a share buyback to reducing the numberof shares on the market thus distracting investors from the fact that excessivestock handouts are taking place.Someof the jurisdictions in the emerging markets that have implemented sharebuyback programs and that have set in place laws and regulations to govern thesame include but are not limited to; South Africa, Nigeria, Malaysia, Singapore,United Kingdom, Australia and India. InIndia for example, share buyback practices by the listed companies areregulated by the SEBI (Buyback of Securities) Regulations, originally framed in1998 and thereafter amended to incorporate other modes of repurchase ofshares.

  The maximum number of sharebuyback is limited to twenty five percent (25%) of the total paid up capitaland reserves of the concerned company. The resources permissible to employ inthe repurchase include; free reserves, securities premium account and the proceedsof any shares or other specified securities however a company cannot buy backits own shares or other specified securities out of the proceeds of an earlierissue of the same kind of shares or specified securities.Sharebuy backs offer regulatory challenges in terms of treatment of shareholders andmarket integrity whereby in repurchase programs some concerns on fair treatmentof shareholders, information asymmetry issues, transparency and marketmanipulation have been raised.Jurisdictionalassessment indicates that, In the majority of jurisdictions of EMCmembers, off-market share repurchases are prohibited while in Thailand,selective buy-backs are allowed when the repurchase is conducted for dissentingshareholders.Accordingto the IOSCO Principles some of the key requirements to be adhered to in ashare repurchase program include; Treatment of shareholders in a fair manner, regulatoryauthorities should ensure that the insider dealing regulations apply to theissuers trading; and conduct the program in a manner that is in consistencywith an orderly market and market integrity.The Companies Act, 2015 Kenya provides for the procedure and therules on share buybacks and the companies intending to undertake share buybackare obligated to fully comply with the provisions of the Act.

In the Interim, and in exercise of its powers under section 11(3) (d) of the Capital Markets Act, Cap 485ALaws of Kenya, the Capital Markets Authority shall issue a Circular providingguidance on share buybacks by listed companies. The Circular is currently beingfinalized and shall be issued in due course.In the medium-term to long-term, theAuthority shall issue comprehensive guidelines or regulations on share buyback.

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