Business & Economics
Ann Marie V. Schilling
Such financial tools as share buybacks are coming under scrutiny by many investment experts. Evidence suggests that share repurchases foster a short-term focus in corporate managers who have a share-based compensation. Recent studies and research draw attention to the negative consequences of corporate share repurchases. While share buybacks were originally intended to create financial value for intrinsically undervalued shares, they are increasingly coming under scrutiny for enabling shareholders to increase their value of wealth at the expense of other stakeholders. With increased stock option plans for corporate executives, the association between increase in open market share buyback activity and compensation may not be a coincidence. Research shows, however, that open market share repurchases have resulted in high stock prices in recent years that run contrary to negative fund flows. At the same time, fundamental corporate growth strategies and fixed investments have not seen a significant rise in activity. This paper measures the impact of corporate share repurchase activity on stock market returns by analyzing broader market measures and industry returns.
Wolf, Parker, "Stock Market Drivers: Corporate Share Repurchases" (2020). Business and Economics Honors Papers. 46.