Buyback Programs Research Articles

The Buyback Monitor – July 2010: Corporate Stock Buyback Profits of 275 Firms 2000-2010

This report updates and expands earlier studies to look at the profitability of $349.7 billion of buybacks executed from 2000 through early 2010 by a sample of 275 corporations. The sample companies, drawn mainly from the technology sector, enjoy total equity market value today of $945.6 billion. In the past decade, 67.3% of sampled companies engaged in buybacks. 35.7% of sampled corporate stock buyback programs are currently profitable (64.3% are unprofitable). Without buybacks, share prices for the group now would be at least 5.3% higher (nearly 10% higher after adjustment for foregone interest income). In part because buybacks by less numerous larger companies did better than those of more numerous smaller companies, the typical company suffered a bigger stock price penalty from losses on buybacks in the past decade than the group overall.Companies with equity market value at least near $1 billion who, priced today, executed the most profitable buybacks during the past decade include, in rank order, CRUS, CY and CTXS. Shareholders of each of these companies received a stock price benefit of at least close to 20% due to corporate profits on buybacks. Other major companies whose buyback profits boosted share prices by at least close to 10% include POWI, ADSK, FLIR, STEC, ORCL, EMC, APKT, OVTI, ARRS and NTAP.Companies with equity market value at least near $1 billion who, priced today, executed the most unprofitable buybacks during the past decade include, in rank order, CDNS, DELL, IDTI, NSM, ISIL, MOT, MXIM, KLAC, and AMAT. Absent buybacks, share prices of these firms today would be at least 21% to 98% higher. Buyback losses of a few, smaller companies (ZLC, ENTN, DITC, ADPT) inflicted even greater damage on share prices.

Community-Based Participatory Research in Boston's Neighborhoods: A Review of Asthma Case Examples

ABSTRACT Three case examples of asthma studies that differ in terms of community and involvement are considered. The Boston Chinatown studies faced limited funding that restricted the level of community involvement, but resulted in some of the first published evidence about asthma in Asian American children. These studies led to an asthma education program grant to a local Asian clinic and elementary school. The public housing study was a well-funded multi-year study of asthma and pest management with city, university and community partners. Residents were trained to collect data and participated throughout the study. Follow up pest management and pesticide buy-back programs headed by the city and community partners have been funded. The Dorchester case had more limited funding, but had the greatest level of involvement of parents of asthmatic children in all phases of the research. This survey led to an interesting novel finding of lower asthma prevalence in foreign born black residents.

Buyback Monitor January 2010: Corporate Stock Buyback Profits of 280 Firms 2000-2009

“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.

Do Gun Buybacks Save Lives? Evidence from Panel Data

In 1997, Australia implemented a gun buyback program that reduced the stock of firearms by around one-fifth. Using differences across states in the number of firearms withdrawn, we test whether the reduction in firearms availability affected firearm homicide and suicide rates. We find that the buyback led to a drop in the firearm suicide rates of almost 80 per cent, with no statistically significant effect on non-firearm death rates. The estimated effect on firearm homicides is of similar magnitude, but is less precise. The results are robust to a variety of specification checks, and to instrumenting the state-level buyback rate.

Assessment of effectiveness of improved fisheries management techniques

The main objective of this research is to review Korean fisheries structural adjustment policy and to evaluate the resource status and fishing capacity in the Yellow Sea. The Korean authorities have for some time followed a structural adjustment policy in fisheries, largely focusing on buyback of fishing vessels. This policy appears to have a significant contribution to reducing the rate of fisheries resource decline and some fish species, such as squid, Spanish mackerel and Jack mackerel, show signs of recovery. Nevertheless, even though a large number of fishing vessels has been retired for the last 15 years, the effective fishing capacity(i.e. engine power) has tended to increase. Thus, increased engine power has to a certain extent replaced decommissioned vessels. This trade-off, often observed under buyback programs, has occurred because of lack of effective institutional arrangements. In order to make the buyback policy more effective, the central and provincial governments need to develop an integrated policy including buyback, resource enhancement, off-fisheries income promotion, fuel subsidy reorientation and self (or co)-management programs. Also, the package program should be supported by a new R&D system that is focused on enhancing and maintaining the Yellow Sea’s environment and ecosystem. This will require far closer cooperative work among South/North Korea, China, and related international bodies.

Review of Indian Buybacks - Nov, 2009

1. As the capital markets have seen significant correction starting January 2008, Indian corporates have announced lot of buyback programs. There are 62 buyback programs that are announced by Indian corporates, with an announced buyback value of Rs. 5,919.52 Crores starting January 2008.2. Of the 62 buyback programs announced, about 40 buyback programs have come to the end of their permitted time. And, the remaining 22 programs are ongoing.3. In the case of 40 buyback programs that came end of their permitted time, they have actually bought-back only 49.90% of the announced value of the buyback. In these cases, the announced buyback value is about Rs. 4,817.59 Crores. However, they have actually bought back only Rs. 2,404.14 Crores.

The Buyback Monitor - July 2009: Corporate Stock Buyback Profits of 273 Firms from 2000 into 2009

Few purely financial decisions rival stock repurchase programs in their bearing on the well-being of shareholders. Absent better financial reports on buybacks, an occasional tally of results seems appropriate. The current “Monitor” extends an earlier study back to 2000 to look at profitability of $263 billion of buybacks executed by a sample of 273 corporations, largely in the technology sector, with total equity market value of $655 billion. 66% of sampled companies engaged in buybacks. While this studies’ reporting methodology tends to significantly overstate buyback profitability, only 25% of buyback programs are currently reported to be profitable. The average sampled company that engaged in buybacks paid out 43% of its current equity market value to buy shares that subsequently declined in value by 19.7%. Had buybacks not been executed, share prices for these companies now would be at least 8.4% higher (or, after adjustment for bias in methodology, more than 13% higher). Companies with the best performing buyback programs during the sample period include CY, STEC, CTXS, MFE, ARRS, FLIR, and ORCL. These companies’ buyback programs have lifted their share prices in the range of 10%. CY ranks first place (16%). The list of companies with poorly performing buybacks is much longer. Notable among these are CDNS, NSM, IDTI, VRSN, ISIL, NOVL, TER, MXIM, LLTC, KLAC, NVLS, and AMAT. Absent buybacks, these companies’ shares would be trading at least 27% higher, and, in many cases, much more (109% for CDNS; 81% for NSM). Detailed results for individual companies are listed by: • Largest percentage profit (return on cash invested in buybacks) • Largest percentage benefit (consequent change in stock price) • Alphabetically

Should the U.S. Congress Appropriate Funds for the Purchase of Older Vehicles?

Proponents of vehicle buy back programs maintain the earlier retirement of older vehicles will reduce pollution, increase income for lower-income households and stimulate the automobile industry. This paper provides a brief assessment of costs and benefits of vehicle buy-back programs. There are environmental benefits from the early retirement of automobiles and light trucks; however, some pollutants are not closely related to vehicle age. Moreover, vehicle buy-back programs are unlikely to reduce consumption of gasoline by a substantial amount and may even increase gasoline consumption in the short run because vehicle age is associated with an increase in miles traveled. Vehicle buy-back programs are not unambiguously progressive because they will increase the price of older vehicles the only source of transportation for lower income groups. This analysis does NOT justify the creation of a national large scale vehicle buy back program. However, vehicle buy-back program targeting the highest emission vehicles and vehicles likely to fail emission inspections creates support for more stringent vehicle emission standards and systems, a proven method to reduce mobile source air pollution. It may be useful to expand subsidies for existing local vehicle buy-back programs and create incentives for the creation of these programs by additional municipalities.

The Buyback Monitor - 'Mirror, Mirror...' - Corporate Stock Buyback Profits of 276 Firms

Few purely financial decisions rival corporate share repurchases in their bearing on a firm's shareholders. Yet, the measurement of a buyback's success is problematic. A rush to judgment based on a single snapshot in time always seems inappropriate since a buyback's profitability depends heavily upon the stock price on the measurement date. With equity markets now in distress, the use of 1/23/09 as a benchmark skews buyback performance downwards. If, at any instant, one might argue that now is not the time to measure a buyback's performance, then, when is? By whom? How often? Should those who recommend or approve good buybacks be rewarded, and those backing bad ones be penalized? If accounting were to provide an ongoing tally of buyback performance, these questions might routinely be answered. Modern accounting, however, never reports buyback profits. In conformance to 15th century conventions, buyback returns bypass the income statement and distort the balance sheet. Absent periodic accountability, the current study puts a limited sample of recent buybacks in context, if only for an instant. Coverage is provided for 276 companies, principally in the technology sector and with total current equity market value of $529 billion, who executed $135 billion of buybacks largely in 2007-2008. 54% (150) of the sampled companies engaged in buybacks. Of those, 3% had profitable buyback programs while 97% had unprofitable programs. The average sampled company that engaged in buybacks in recent years suffered a 34.9% loss on cash invested in buybacks. Had those companies refrained from buybacks, then their share prices today would be 9.9% higher. Individual company performance is tabulated by: * Largest percentage profit (return on cash invested in buybacks) * Largest percentage benefit (consequent change in stock price) * Alphabetically

A Production-Inventory Problem under an Energy Buy-Back Program

This paper considers a production-inventory problem in which the manufacturer participates in an energy buy-back program, which offers him probabilistic opportunities with rewards for not using electricity. That is, the manufacturer will get paid for stopping production to save on electricity. The amount rewarded in a period will depend on the electricity market condition at that time. The market condition in any given period is represented by three states: normal (i.e., non-peak), semi-peak, or peak, and the reward amount in the period will be 0, K1; and K2, respectively. The occurrence of each state in a period is dictated by a known probability distribution. The objective is to determine from the manufacturer's perspective, whether to take such an offer when it arises. Under a mild assumption, we show that in the normal market condition, the production decision is partly a base-stock policy, whereas under semi-peak and peak conditions, the manufacturer, upon accepting the offer, produces according to (s1; S) and (s2; S) policies, corresponding to K1 and K2; respectively. Two variants of the model are also discussed.

Penny Ante: Are Commissions Paid on 'Plain Vanilla', 10b-18 Corporate Stock Repurchases Reasonable? Microtune Case Study

Previous studies of corporate stock repurchase programs found low efficiency (high execution cost), questionable performance (inconsistent profitability), idiosyncratic transaction reporting (monthly cost reports may not match actual monthly transactions), archaic shareholder accounting conventions (profit/loss on equity trades always excluded from the income statement), and multiple potential governance conflicts. To that litany of shortcomings in the execution of corporate buybacks, the current study adds excessive commission costs. Commission and related expense data on corporate stock repurchase programs is difficult to obtain. Consequently, though only a single data point, Microtune, Inc.'s (TUNE) unintentional release of its May 2008 stock repurchase commission cost data merits attention. Microtune paid a commission rate of 0.492% (1.95 cents per share), a rate that seems high for a riskless, plain vanilla transaction. Excessive commission fees may be among the less serious shortcomings of corporate stock buyback programs, a matter of pennies. Still, pennies add up. In 2007, S&P 500 buybacks peaked at $589 billion. If all buybacks were executed at the rate paid by Microtune, commissions on buybacks would have been $2.9 billion. Is the Microtune transaction representative? Are buyback commission and expense fees high? If high, does that reflect the cost of regulatory compliance, or do companies just pay too much? If answers to these questions must hinge on the inadvertent release of commission data by a single company for a single month, then the natural conclusion is another question: Is reporting of corporate stock repurchases adequate?

California Pizza Kitchen

This case examines the question of financial leverage at California Pizza Kitchen (CPK) in July 2007. With a highly profitable business and an aversion to debt, CPK management is considering a debt financed stock buyback program. The case is intended to provide an introduction to the Modigliani and Miller capital structure irrelevance propositions and the concept of debt tax shields. With the background of a company, the case provides an engaging context to discuss the pizza graphs that are commonly used in corporate finance curriculum to illustrate the wealth effects of capital structure decisions.The case serves to motivate the following teaching objectives: 1. Introduce the Modigliani-Miller intuition of capital structure irrelevance2. Establish how the cost of equity is affected by capital structure decisions by defining financial risk and introducing the levered beta CAPM equation3. Discuss interest tax deductibility and the valuation tax shields4. Explore the importance of debt capacity in a growing businessAn instructor spreadsheet and teaching note is available for instructors.

Category 4b Demonstration for Petroleum Hydrocarbon Impaired Waters in the Kenai River, Alaska

Section 303(d) of the Clean Water Act (CWA) and the US Environm ental Protection Agency’s (USEPA’s) supporting regulations in 40 CFR Part 130.7 require states to develop lists of waterbodies impaired by a pollutant and needing a Total Maximum Daily Load (TMDL) (i.e., the Section 303(d) list) and to prepare a TMDL for each waterbody/pollutant combination. USEPA’s regulations also recognize that other pollution control requirements may obviate the need for a TMDL. These alternatives to TMDLs are commonly referred to as Category 4b waters as described in USEPA’s Integrated Reporting Guidance for Sections 303(d), 305(b), and 314 of the CWA. One of the most visible waterways in Category 4b is the Kenai River. The Kenai River is known worldwide for its prized King Salmon. The initial 20 miles of the lower river attracts over 700 boats per day during the peak fishing season. Water quality data for the Kenai River showed elevated petroleum hydrocarbon levels during the month of July in the lower portion of the river. A water quality assessment conducted by the Alaska Department of Environmental Conservation (ADEC) in 2003 confirmed the source of the petroleum hydrocarbon pollution was from motorboats and subsequent studies identified older, 2-stroke motors as the primary source. The waterbody was subsequently listed as impaired on ADEC’s Section 303(d) list (Category 5). As a result of the 2003 study, ADEC began meeting with Kenai River stakeholders to strategize and develop a waterbody recovery plan and take the necessary actions. By 2007, the Kenaitze Indian Tribe using USEPA Targeted Watershed Initiative Grant monies initiated a buy-back program for older, more polluting, carbureted 2-stroke motors. In 2008, Alaska adopted regulations requiring all outboard engines used in the Kenai River Special Management Area and the personal use fishery to be cleaner motors - either 4-stroke or direct fuel injection 2-stroke motors. For the 2008 reporting cycle, the ADEC assigned petroleum hydrocarbon impaired waters of the Kenai River to Category 4b. Based on water quality modeling results for the river, ADEC expects the implementation strategy will result in attainment of the petroleum hydrocarbon water quality standard by 2010. This paper presents ADEC’s demonstration for assigning these waters to Category 4b according to USEPA’s Category 4b guidance, lessons learned in developing the restoration strategy, and potential challenges for maintaining these waters in Category 4b for future 303(d) reporting cycles.

Plumbemia em trabalhadores da indústria de reciclagem de baterias automotivas da Grande Porto Alegre, RS

A reciclagem de baterias pode contaminar o ar, o solo e a água, não só no lugar de processamento, mas também nas regiões circunvizinhas, sendo que os resíduos permanecem no local mesmo após o término da atividade. No presente artigo descrevemos os resultados da avaliação da plumbemia em 53 operários que trabalhavam com reciclagem de baterias automotivas e em 53 indivíduos sem história de exposição. Os dados obtidos foram comparados e discutidos em relação às normas do Ministério do Trabalho (MT) e da Occupational Safety and Health Administration (OSHA). A plumbemia no sangue do grupo controle foi de 2,44±1,15 µg/dl e, no grupo exposto, de 59,43±28,34 µg/dl, sendo que 79,2% dos indivíduos mostraram níveis acima do valor de referência (até 40 µg/dl). Estudos recentes recomendam estratégias para prevenir a intoxicação com chumbo: identificação, eliminação ou controle da fonte, monitoração da exposição e respectivos danos e um programa de recompra de baterias usadas das por parte da indústria de origem.

ECONOMIC CRUNCH HITS EUROPEANS

IF EUROPEAN chemical companies ever had any hope of avoiding the spreading economic crisis, they are abandoning it. Chief executives and financial officers reporting third-quarter results owned up to being in what Clariant CEO Hariolf Kottmann called “an extremely challenging macroeconomic environment.” At specialty chemical maker Ciba, CEO Brendan Cummins noted that business conditions “have deteriorated in the third quarter.” As a result, he added, the earlier guidance on profitability at Ciba, which is being acquired by BASF, “is no longer applicable.” “The downswing in the economy was increasingly noticeable from September onward,” said Kurt Bock, BASF’s chief financial officer, when the company announced its third-quarter numbers at the end of October. As a result, BASF will cut more than 1,000 jobs worldwide by 2012, Bock said. Moreover, the company will follow the lead of DSM and AkzoNobel and suspend its share buyback program. In reporting its results for the quarter, DSM noted that it ...

Stock Buybacks and Their Association with Stock Options Exercised in the IT Industry

One of the most complex and controversial issues confronting the Financial Accounting Standards Board (FASB) over the last several years has been the accounting and financial reporting of stock options. In December 2004, the FASB issued Statement 123R, Share‐Based Payment, in the hope that the long process of revising the accounting and financial reporting for stock options will be put to rest. FASB Statement 123R requires the fair‐value‐based method of accounting for share‐based payments. In order to offset the dilutive effects of generous stock option compensation packages for employees, companies are seemingly participating in stock repurchase plans. In the past, stock buyback programs were viewed as a means of distributing excess cash flow to investors; however, it appears now that many companies are financing stock repurchases through the issuance of debt, which can significantly impact the financial flexibility of a company. So, why do companies engage in this behavior? One possible reason for stock buybacks is to reduce the dilutive effect of stock option plans. Companies have, however, disputed that there is a direct relationship between exercised stock options and stock buyback transactions. Nevertheless, several articles and studies have found that there is a relationship and the FASB seems to believe that there is an association between stock buybacks and stock options, as Statement 123R requires that companies disclose the relationship between stock buybacks and stock payment programs. Using a sample of technology firms, we find evidence of an association between exercised stock options and repurchase of stock.

Mixed messages: Buying back Australia's fishing industry

Abstract This paper discusses the process and outcomes of a major buyback of commercial fishing concessions across all Australian Commonwealth-managed fisheries through 2006. It argues that the intent of the buyback program was ambiguous, the process was flawed, and the outcomes of doubtful benefit to fish or to fishermen. This case study directs attention to deeper issues that prevail in forms of managing people under the guise of a non-explicit ideology of “extol and control”.

A note on the effects of debt buybacks in the MM world

This study notes that in the world of Modigliani and Miller (MM), a debt buyback program will maximize the share price as well as cash flows to the stockholders. Also, holding period returns for investors that buy into the company before the debt buyback are higher than a similar MM firm that does not repurchase its debt.

Should Insider Trading be Prohibited when Share Repurchases are Allowed?*

This paper considers share repurchases as the way long-term shareholders preserve their ability to use corporate information for speculative purposes when insider trading regulation is enforced. This use of corporate information increases the adverse selection losses of short-term shareholders. Thus, buy-back programs reduce their incentive to invest in stocks that back the most productive technology, leading to a socially inefficient equilibrium. It follows that insider trading should not be banned when share repurchases are allowed. More generally, the paper argues that the regulation of insider trading and repurchases can not be considered in isolation, and analyzes their interplay. Copyright 2008, Oxford University Press.

A Production–Inventory Problem for an Energy Buy-Back Program

This paper considers a production-inventory problem in which the manufacturer participates in an energy buy-back program, which offers probabilistic opportunities with rewards for not using electricity. That is, the manufacturer will get paid for stopping production to save on electricity. The amount rewarded in a period will depend on the electricity market condition at that time. The market condition in any given period is represented by states: normal (i.e., nonpeak), peak type , peak type , and the reward amount in the period will be, and, respectively. The occurrence of each state in a period is dictated by a known probability distribution. The objective is to determine from the manufacturer's perspective, whether to take such an offer when it arises. Under a mild assumption, we show that in the normal market condition, the production decision is partly a base-stock policy, whereas under peak type condition, the manufacturer, upon accepting the offer, produces according to an policy, where. The numerical experiment demonstrates that the cost savings due to buy-backs can be substantial. It also shows that the always-participating strategy (i.e., the firm shuts down production whenever the buy-back program is activated) can perform much worse than the never-participating strategy.