The Great Deception: A Comprehensive Study of Execution Strategies in Corporate Share Buy-Backs

23 Pages Posted: 13 Jul 2023 Last revised: 14 Aug 2023

See all articles by Michael Seigne

Michael Seigne

Candor Partners Limited

Joerg Osterrieder

University of Twente; Bern Business School

Date Written: July 3, 2023

Abstract

When repurchasing shares, companies should aim to get the maximum shares for their money, reduce exposure to market risk, and maintain reasonable commission fees. We identify how companies can fall short in these areas, shedding light on the underlying mechanisms that brokers employ in the process. In the thriving $1.3 trillion global buy-back market, our findings suggest that companies have paid up to $8 billion in excess fees over the last five years.

We use anonymous case studies to highlight instances where companies, intending to buy back £200 million worth of shares, managed to acquire only £184 million worth, with the discrepancy attributed to broker fees. This situation is indicative of a larger pattern in the buy-back market, characterized by high costs and inefficiencies.

In our examination, we unravel how brokers can charge these significant fees despite the inherent uncertainties in the share buy-back market. We also underscore the substantial market risks that companies bear during buy-backs, which we estimate at approximately $276 billion over the past five years.

In light of these findings, this paper suggests a need for review and potential regulation in this space to ensure transparency, fairness, and cost-efficiency. It contributes to enhancing understanding and promoting informed decision-making in the context of share buy-backs.

Keywords: Share buy-backs, Execution strategies, Capital allocation, Regulatory compliance, Frictional costs

JEL Classification: G00

Suggested Citation

Seigne, Michael and Osterrieder, Joerg, The Great Deception: A Comprehensive Study of Execution Strategies in Corporate Share Buy-Backs (July 3, 2023). Available at SSRN: https://ssrn.com/abstract=4499366 or http://dx.doi.org/10.2139/ssrn.4499366

Michael Seigne (Contact Author)

Candor Partners Limited ( email )

Joerg Osterrieder

University of Twente ( email )

Drienerlolaan 5
Departement of High-Tech Business and Entrepreneur
Enschede, 7522 NB
Netherlands

Bern Business School ( email )

Brückengasse
Institute of Applied Data Sciences and Finance
Bern, BE 3005
Switzerland

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
441
Abstract Views
1,582
Rank
125,788
PlumX Metrics