Papers › Quantitative earnings enhancement from share buybacks

Quantitative earnings enhancement from share buybacks

11 Nov 2019arXiv:1911.04199links table onlyarchive 2025-07-28

Lawrence Middleton, James Dodd, Graham Baird

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This paper aims to explore the mechanical effect of a company's share repurchase on earnings per share (EPS). In particular, while a share repurchase scheme will reduce the overall number of shares, suggesting that the EPS may increase, clearly the expenditure will reduce the net earnings of a company, introducing a trade-off between these competing effects. We first of all review accretive share repurchases, then characterise the increase in EPS as a function of price paid by the company. Subsequently, we analyse and quantify the estimated difference in earnings growth between a company's natural growth in the absence of buyback scheme to that with its earnings altered as a result of the buybacks. We conclude with an examination of the effect of share repurchases in two cases studies in the US stock-market.

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