48 Pages Posted: 3 Jan 2010
Date Written: January 2, 2010
“Modern” accounting adheres to 15th century conventions in maintaining that corporate stock repurchases never result in a profit or loss for a firm. In actual practice, however, few purely financial decisions rival stock repurchases in their bearing on the well-being of shareholders. Because profit/loss on buybacks is excluded from the audited financial statements of corporations, an occasional tally of buyback results seems in order.
This report updates and expands earlier studies to look at the profitability of $338.4 billion of buybacks executed from 2000 through late 2009 by a sample of 280 corporations. The sample, drawn mainly from the technology sector, enjoys total equity market value today of $1.052 trillion. In the past decade, 67.1% of sampled companies engaged in buybacks, and, in total, paid 34.2% of their current equity market value to buy shares that subsequently declined in value by 4.2%. 38.8% of sampled corporate stock buyback programs are currently profitable (61.2% are unprofitable). Without buybacks, share prices for the group now would be at least 1.4% higher (or, after adjustment for foregone interest income, more than 5% higher). In part because large company buybacks did better than those of smaller companies, the typical company today suffers at least a 13.8% stock price penalty due to past stock buybacks.
This report also ranks the stock repurchase results of individual companies: By largest percentage profit (return on cash invested in buybacks); blargest percentage benefit (consequent change in stock price), and alphabetically.
Companies with equity market value at least near $1 billion who, priced today, executed the best buybacks during the past decade include, in rank order, CY, CTXS, POWI, QLGC, ADSK, ORCL, FLIR, MFE, and STEC. Buybacks lifted these firms’ share prices in the range of 15%. ARRS, SLAB, EMC and CSCO were not far behind.
Companies with equity market value at least near $1 billion who, priced today, executed the worst buybacks during the past decade include, in rank order, CDNS, DELL, NSM, NOVL, IDT, MOT, MXIM, ISIL, and TLAB. Absent buybacks, these firms today would be trading at least 18% to 92% higher. Buybacks of a few, smaller companies (ZLC, DITC, ADPT) inflicted substantially greater damage on share prices.
Keywords: Stock repurchase, stock buyback, 10b-18, 10b5-1, Cypress, Citrix, Power Integrations, QLogic, Autodesk, Oracle, FLIR, McAfee, STEC, Cadence Design, Dell, National Semiconductor, Novell, Integrated Device Technology, Motorola, Maxim, Intersil, Tellabs
JEL Classification: G35, G30, M40, M41, G34, G32
Suggested Citation: Suggested Citation
Gumport, M. A., Buyback Monitor January 2010: Corporate Stock Buyback Profits of 280 Firms 2000-2009 (January 2, 2010). Available at SSRN: https://ssrn.com/abstract=1530602 or http://dx.doi.org/10.2139/ssrn.1530602