Ric Marshall is Executive Director of ESG Research, Panos Seretis is Head of ESG Research, and Agnes Grunfeld is Vice-President at MSCI Inc. This post is based on a MSCI memorandum by Mr. Marshall, Mr. Seretis, and Mr. Grunfeld.
Related research from the Program on Corporate Governance includes The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here); Share Repurchases, Equity Issuances, and the Optimal Design of Executive Pay, by Jesse Fried (discussed on the Forum here); and Short-Termism and Capital Flows by Jesse Fried and Charles C.Y. Wang (discussed on the Forum here).
Executive Summary
- Share buybacks have become the favored means for distributing cash to investors among large-cap S. companies, exceeding cash dividends every year since 1997 at 388 of the 610 companies (63.6%) we studied.
- A majority of the companies we observed bought back shares when prices were high rather than low, as buybacks have replaced dividends as the dominant way of returning cash to investors at many companies.
- Contrary to concerns expressed by many observers, we found no compelling evidence of a negative impact from share buybacks on long-term value creation for investors overall. In each of the areas we examined, beginning with MSCI ESG Ratings but also including CAPEX, R&D, new debt issues, and, most importantly, value creation, the companies that were most actively distributing cash to their investors were also the strongest companies.
- Companies where index investors were the largest shareholders included a much wider range of buyback impacts, good and bad, than companies where the largest shareholders were buy-and-hold investors: total returns for the buy-and-hold investor companies were 18% higher, on average, than for the index investor companies from 2007 to 2016.
