While stock buybacks have traditionally been concentrated in the US, they are increasingly popular in Europe and Asia. Japan reported US$52.5 billion of buybacks in 2018.
While buybacks in Singapore were dominated by DBS, UOB and OCBC, the US Federal Reserve ordered the country’s largest banks to suspend their stock buyback programmes.As lawmakers weigh whether emergency assistance should come with stock buybacks restrictions, observers wonder whether this stand is restrictive or justified.The answer depends on whether we believe in laissez-faire capitalism.
Furthermore, since buybacks reduce the number of outstanding shares, they automatically improve many valuation ratios such as earnings-per-share. While economists argue the effect of artificially inflated valuation ratios should have no effect on valuation, an increase in share price is a well-documented consequence of stock buybacks.
READ: Commentary: COVID-19 - plunge in stock prices absurd but markets could take bigger hammering soon Theoretically, rising shareholder wealth may have a positive impact on consumption and thus the real economy . However, the research study by Karl Case, John Quigley and Nobel Laureate Robert Shiller found “at best weak evidence” of a stock market wealth effect.