The Buyback Monitor - 'Mirror, Mirror...' - Corporate Stock Buyback Profits of 276 Firms

Abstract:     
Few purely financial decisions rival corporate share repurchases in their bearing on a firm's shareholders. Yet, the measurement of a buyback's success is problematic. A rush to judgment based on a single snapshot in time always seems inappropriate since a buyback's profitability depends heavily upon the stock price on the measurement date. With equity markets now in distress, the use of 1/23/09 as a benchmark skews buyback performance downwards.

If, at any instant, one might argue that now is not the time to measure a buyback's performance, then, when is? By whom? How often? Should those who recommend or approve good buybacks be rewarded, and those backing bad ones be penalized? If accounting were to provide an ongoing tally of buyback performance, these questions might routinely be answered. Modern accounting, however, never reports buyback profits. In conformance to 15th century conventions, buyback returns bypass the income statement and distort the balance sheet.

Absent periodic accountability, the current study puts a limited sample of recent buybacks in context, if only for an instant. Coverage is provided for 276 companies, principally in the technology sector and with total current equity market value of $529 billion, who executed $135 billion of buybacks largely in 2007-2008. 54% (150) of the sampled companies engaged in buybacks. Of those, 3% had profitable buyback programs while 97% had unprofitable programs. The average sampled company that engaged in buybacks in recent years suffered a 34.9% loss on cash invested in buybacks. Had those companies refrained from buybacks, then their share prices today would be 9.9% higher.

Individual company performance is tabulated by:

* Largest percentage profit (return on cash invested in buybacks)
* Largest percentage benefit (consequent change in stock price)
* Alphabetically

Number of Pages in PDF File: 32

Keywords: Stock buyback, stock repurchase, share repurchase, 10b-18, 10b5-1, equity accounting, mark to market, Pacioli, NSM, CDNS, KLAC, VRSN, NVLS, IDTI, ISIL, LRCX, LSI

JEL Classification: G12, G24, G32, G34, G35, M41, K22

working papers series