NEW YORK -- Companies engage in stock buybacks for reasons beyond increasing their share prices, according to a new study issued by the Financial Executives Research Foundation.
The study also found that: buybacks boosted prices of for both small-cap and large-cap stocks, but the effect was more pronounced for smaller stocks; earnings per share at both small-cap and large-cap companies doing buybacks showed substantial EPS growth after their stock was repurchased; companies with below industry-average profits and sales showed higher share price growth after their buybacks; buybacks were financed by excess cash flow, rather than by increasing debt; and stock repurchases did not replace dividend payouts.
The study was conducted by S.G. Badrinath of Rutgers University and Nikhil P. Varaiya of San Diego State University; it examined share repurchase programs of 200 firms from Jan. 1, 1991, through Dec. 31, 1996.
