Share Repurchases by U.S. Companies : Could They Be Done at More Advantageous Prices for Long-Term Shareholders?

Abstract: The paper studies share repurchases done by 50 randomly chosen U.S. publicly traded companies between 1996 and 2007 and checks if they could have been done at more advantageous prices for long-term shareholders in the two years following repurchases. The paper argues that the lower the price at which a repurchase is done the better it is for long-term shareholders.   The results indicate that on average for 37 % of the years in which a company repurchased shares, it could have done it at a price at least 25 % lower in the next two years. When the results are weighted to take into account the dollar amounts spent on repurchases each year, the figure increases to 56 %. The paper looks also at if the repurchases could have been done at a price at least 50 % lower in the next two years. The unweighted results show that on average it would have been possible for 17 % of the years in which a company repurchased shares. When the result is weighted for the dollars spent on repurchases each year the proportion increases to 32 %.   The results show also that the companies increased massively their repurchases just before the stock market crash that started in the late 2007.