Share Buybacks

Share buybacks are exactly what they sound like: the process by which companies buy back their own shares. For one, it’s a tax-efficient way to make shareholders happy: reducing the supply of publicly available shares boosts the prices of those that are left. For another, limiting the number of shares also increases earnings per share (EPS), which makes a company look more profitable even if nothing’s changed. That’s especially tempting for executives who are often rewarded based on EPS growth and who – since they control the timing of buybacks – can cash out their own shares accordingly. That may be one of the reasons US companies spent more than $4.3 trillion on share buybacks between 2009 and 2018 – and why some US politicians are now seeking to restrict the practice.