Are Buybacks Increasing EPS?

Abstract:     
Trends indicate that treasury shares or buyback shares are gaining new momentum and intensity and maybe effecting reported earnings per share. This study was undertaken by evaluating the buyback activity of the Standard and Poor’s 500, for the period of 2005-2008 to the Hribar et al (2004 and revised 2006) study of buybacks for their period of 1988-2001. Their study reflected that buybacks were not dominant due to their tri-model of low number of share being repurchased, the high number of companies experiencing a loss and high P/E multiples. This study experienced greater frequency and intensity of buybacks, due to a reversal in the three conditions being a larger number of shares purchased,) lower incident of losses and lower P/E multiples. The findings are that buybacks are more frequent, more intense, and are having an increased accredited effect on EPS. As a solution proposed here is a new EPS model that reports EPS in segments; those from operations and those from buybacks when the effect is $.01 or more. This new EPS model is responsive to the changing financial landscape and is deserving of attention at this time of international accounting assessment.

Number of Pages in PDF File: 14

Keywords: Buybacks, Treasury Shares, Stock Repurchases, Earnings Per Share

JEL Classification: M41, G35

Accepted Paper Series