Value appreciation without value creation: why are companies buying back their own shares en masse?

More and more listed companies buy back their own shares from investors. In 2020, the world’s 1,200 largest companies bought back their own shares for a record $1,310 billion. That’s almost equivalent to the amount the same companies paid out in dividends during the year.

Why is this important?

The buyback of shares is called “financial engineering” on Wall Street. The practice is often seen as a way to increase stock prices and thereby increase management bonuses. Value appreciation without value creation, say critics.

In the news. The US Securities and Exchange Commission (SEC) imposes more rules on companies that want to buy back their own shares.

  • A study by Janus Henderson Investors shows that last year 22 percent more money was spent on share buybacks by the world’s 1,200 largest companies. The record that had been set barely a year earlier was thus shattered.
  • There is no question of a temporary phenomenon, but of a clear trend:

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