Universal Basic Buybacks

Share repurchases (buybacks) have been a recent source of controversy due to misperceptions of their economic effects on firms and shareholders. Commentators in the financial press, financial institutions, and even politicians have misunderstood the effects of share repurchases on share prices and/o...

Full description

Saved in:
Bibliographic Details
Published inJournal of Accounting and Finance Vol. 23; no. 2; pp. 61 - 74
Main Author Kovacs, Gene J
Format Journal Article
LanguageEnglish
Published West Palm Beach North American Business Press 01.01.2023
Subjects
Accounting
Capital expenditures
Corporate profits
Dividends
Earnings per share
Economic impact
Efficient markets
Financial statement analysis
Investments
Mechanics
Net present value
Prices
Profitability
R&D
Research & development
Residuals
Securities buybacks
Stock prices
Stockholders
Valuation
Online AccessGet full text

Cover

More Information
Summary:Share repurchases (buybacks) have been a recent source of controversy due to misperceptions of their economic effects on firms and shareholders. Commentators in the financial press, financial institutions, and even politicians have misunderstood the effects of share repurchases on share prices and/or shareholder enrichment. I demonstrate the economic effects of share repurchase using financial statement analysis and a residual income valuation (RIM) approach. Consistent with decades of prior finance and accounting research, the results demonstrate that share repurchases do not contribute incremental value to shareholders. Share repurchases do not increase price per share. However, share repurchase do reduce market value, increase financial leverage and certain profitability metrics, and increase the equity cost of capital.