Read Online STOCK BUYBACKS RTF

A review of the traditional stock buyback controversies combined with new evidence indicates that large investors and asset managers likely will benefit from increased transparency and governance of capital allocation policies at public companies. Efforts to “eliminate” high-frequency trading may be misplaced given the widespread benefits of lower commissions. Instead, greater attention to the “quality” of market prices and the effectiveness of the stock market likely will yield greater social value.Such actions will improve the information content of market prices while also mitigating principal-agent problems throughout the investment process necessary to save the “active” investment management profession from further disintermediation.A fresh approach to stock buybacks is justified given the market structure changes in recent decades where electronic trading and declining commissions have contributed to increased short-term and high-frequency trading.Companies that rely on the Rule 10b-18 safe harbor to conduct open market repurchases have been able to repurchase ever-increasing amounts of stock while remaining in compliance with the volume limitations of the rule. Failure of long-term active managers to outperform the market suggests that public equity market prices do not reflect the investment opinion of such managers. The poor performance of investment managers may be attributable to “uneconomic” signals impacting the market prices of shares exacerbating volatility and making the stock market less effective in its social function of allocating savings and investment. Capital allocation will take on increasing importance as asset owners and investors focus on the sustainable development goals (SDGs) set by the United Nations in 2015.This e-book compares the share repurchases by S&P 500 companies relative to the investment activity of long-term institutional investors. Contrary to conventional wisdom, evidence suggests that repurchase programs may be large enough to influence the market price of a company’s shares. It is proposed that open market share repurchases may be useful to all stakeholders if they are implemented when the market is failing to supply liquidity. Share repurchases can increase prevailing market depth and limit volatility to the benefit of all shareholders. An increase in regular and one-time dividend payments relative to buybacks will ensure value is delivered to long-term shareholders while buybacks can be used to provide greater ongoing price stability.