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New Study: Corporate Stock Repurchases Benefit All Shareholders – Especially Seniors

economy-market-confidence-trump stock corporate seniorsNoted economist Craig Lewis says recent criticisms of stock buybacks as financial gimmicks do not hold water, overlook large benefits to seniors

Feb.12, 2019 – Washington, DC:  A new economic report commissioned by the Association of Mature American Citizens (AMAC) shows the vast majority of stock repurchases provide substantive, long-term shareholder benefits, especially to retired seniors who heavily depend on investment income to help maintain their quality of life. The study takes an in-depth look at recent corporate stock repurchases and reveals how many company stock buy-backs are often unfairly criticized as financial gimmicks or tools to artificially manipulate stock prices.

The study was written by noted corporate financial analyst Craig Lewis, former Chief Economist at the Securities and Exchange Commissions under the Obama Administration and current Madison S. Wigginton Professor of Finance at Vanderbilt University.

“Recent criticisms of corporate share buy-backs often make headlines but they do not hold up to careful analysis,” said Lewis. “All shareholders benefit from share repurchases and statements suggesting share repurchase programs are politically motivated bear little relation to the empirical evidence.”

“Seniors disproportionately benefit from a robust stock market – one that creates value, financial security and flexibility for seniors,” said Dan Weber, founder and president of AMAC. “Attempts to interfere in a company’s ability to manage cash or return profits to shareholders hurt America’s seniors, who tend to have more exposure to the stock market.”

Key findings of the AMAC Study:

  • Buybacks benefit seniors: The study highlights how corporate share repurchases benefit all shareholders – especially seniors.
    • Seniors saving for retirement often hold more money in mutual funds and common stock than other demographics – a healthy, robust stock market greatly benefits seniors
    • Share buybacks also enhance options and help increase long-term value of seniors’ portfolios.
    • The study reveals how asset price increases following share repurchase programs are more often permanent – not short-lived.
  • Buybacks do not stifle corporate capital investment: The study finds stock buybacks do not come at the expense of investments in new projects that create long-term value for workers, communities, shareholders or the company itself.
    • In analyzing the investment activity of publicly traded companies over a seven-year period (from 2010 to 2017), the study finds that firms offering share repurchases over this period maintained the capacity to “invest in capital assets, pay dividends, repurchase shares and still have over one-third of adjusted net income remaining for other corporate uses.”
    • Moreover, the study reveals how on average, firms distribute roughly 27% of adjusted net income to shareholders on an annual basis. Thus, companies that conduct share repurchases are not constrained in their ability to make capital investments and have significant flexibility to do so.

“Companies are often unfairly criticized for cutting back on capital investments or sacrificing other improvements in order to repurchase shares but our analysis reveals that, on average, firms are still able to invest in new projects, pay dividends to shareholders, and repurchase shares without such constraints,” Lewis said.

ABOUT AMAC
The Association of Mature American Citizens [AMAC] [https://www.amac.us] with 1.6 million members, is a vibrant, vital senior advocacy organization that takes its marching orders from its members. We act and speak on their behalf, protecting their interests and offering a practical insight on how to best solve the problems they face today. Live long and make a difference by joining us today at https://amac.us/join/.

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PaulE

Absolutely nothing wrong with corporate buy-backs of their stock. It’s merely one of the ways that corporations return value to their shareholders. The last thing we need in this country is a bunch of incompetent, ignorant members of Congress, most of whom have never held a job in the private sector in their entire lives, being allowed to dictate how any aspect of the private economy functions. Everything they touch quickly turns to sh*t. On a side note, somebody from the state of Florida please tell Senator Macro Rubio to shut up and actually stand for the fiscal and constitutional principles he supposedly supports. I see he has jumped on this Democrat bandwagon issue. One would have thought that after McCain passed, that both Rubio and Graham would have tried to curb their reflexive response to immediately “reach across the aisle” and support every ludicrous proposal the Democrats put forth.… Read more »