Signalling theory predicts that costly corporate actions convey credible private information to investors under conditions of information asymmetry. Consequently, within business groups, where affiliated firms share ownership, reputation and financial linkages, such signals may extend beyond the announcing firm and influence the valuation of other group members. However, the existence and direction of these spillovers remain unclear, as reputational contagion and internal resource constraints can produce opposing effects. This study investigates whether share repurchase announcements by business group–affiliated firms in India generate spillover effects on the stock prices of other firms within the same group.
Using 472 repurchase announcements between 2008 and 2024 by Indian business group–affiliated firms, we construct equal-weighted portfolios of non-announcing affiliated firms and examine market reactions using the event study methodology. Placebo and Lewbel’s (2012) tests are employed to validate robustness.
Repurchase announcements generate significant positive abnormal returns for non-announcing affiliates. Spillovers are stronger when the announcing firm offers a higher repurchase premium, exhibits greater prior undervaluation and is less financially constrained. Higher promoter ownership dampens spillovers, while illiquid non-event firms benefit more due to greater reliance on external signals.
The findings demonstrate that signalling theory operates beyond the firm level in concentrated ownership settings, enabling repurchase announcements to function as group-level revaluation mechanisms.
This study provides novel evidence that share repurchases function as group-level signals within business groups, extending signalling theory to a collective organisational setting and contributing to the literature on intra-group dynamics.
