Does Share Buyback Return Value to Shareholders?

There is a school of thought that companies engage in share buybacks to support the down side of its share price. This is good because it is returning back some of the cash back to the shareholder. Indirectly, it is supposed to help shareholder by returning value. So let us take a look at some examples.
As per Standard and Poor’s research published in December 2007, S&P500 index companies spent (three years preceding the published date):

  • USD 1.318 trillion on share buybacks;
  • USD 1.276 trillion on capital expenditures;
  • USD 0.376 trillion on research and development; and
  • USD 0.605 trillion on common dividends.

To put these numbers in perspective, around that time period, the entire market capitalization of the S&P 500 was approximately $14 trillion. I was under the impression that corporate America spends more in research and development. However, this observation tells me otherwise.

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