Penny Ante: Are Commissions Paid on 'Plain Vanilla', 10b-18 Corporate Stock Repurchases Reasonable? Microtune Case Study

Abstract:     
Previous studies of corporate stock repurchase programs found low efficiency (high execution cost), questionable performance (inconsistent profitability), idiosyncratic transaction reporting (monthly cost reports may not match actual monthly transactions), archaic shareholder accounting conventions (profit/loss on equity trades always excluded from the income statement), and multiple potential governance conflicts.

To that litany of shortcomings in the execution of corporate buybacks, the current study adds excessive commission costs. Commission and related expense data on corporate stock repurchase programs is difficult to obtain. Consequently, though only a single data point, Microtune, Inc.'s (TUNE) unintentional release of its May 2008 stock repurchase commission cost data merits attention. Microtune paid a commission rate of 0.492% (1.95 cents per share), a rate that seems high for a riskless, plain vanilla transaction.

Excessive commission fees may be among the less serious shortcomings of corporate stock buyback programs, a matter of pennies. Still, pennies add up. In 2007, S&P 500 buybacks peaked at $589 billion. If all buybacks were executed at the rate paid by Microtune, commissions on buybacks would have been $2.9 billion.

Is the Microtune transaction representative? Are buyback commission and expense fees high? If high, does that reflect the cost of regulatory compliance, or do companies just pay too much? If answers to these questions must hinge on the inadvertent release of commission data by a single company for a single month, then the natural conclusion is another question: Is reporting of corporate stock repurchases adequate?

Number of Pages in PDF File: 14

Keywords: ASR, accelerated stock repurchase, Microtune, TUNE, 10b-18, 10b5-1, stock buyback, stock repurchase, governance

JEL Classification: G12, G13, G24, G30, G32, G33, G34, G35, M41, K22

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