Share Repurchases and Long-term Dilution: Firm Characteristics and Industry Differences

Publicized accounts of share repurchase activity have created the perception that the number of shares outstanding is declining. Studies using aggregate data have discredited this perception and have demonstrated that dilution is actually occurring. However, very few studies have rigorously analyzed...

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Bibliographic Details
Published in:Quarterly journal of finance and accounting 2014-12, Vol.52 (3/4), p.1-51
Main Authors: ROOT, THOMAS, ROZYCKI, JOHN, SUH, INCHUL
Format: Article
Language:English
Subjects:
Business structures
Correlations
Dividends
Industry
Repurchasing
Shareholders
Shares outstanding
Stock buyback
Stock shares
Trade shows
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Summary:Publicized accounts of share repurchase activity have created the perception that the number of shares outstanding is declining. Studies using aggregate data have discredited this perception and have demonstrated that dilution is actually occurring. However, very few studies have rigorously analyzed this dilution at the firm level. We analyze dilution at both the firm and industry level. Additionally, because the cumulative impact of dilution has a dramatic effect on the long-term shareholder, we focus on firms with an established history. Our results indicate that the amount of dilution varies greatly by industry. In addition, we build a profile of financial characteristics that clearly distinguishes high-diluting firms from low-diluting ones. We find that high-diluting firms have poorer financial performance than low-diluting firms, a characteristic that is easily overlooked when a firm's total market value and share price are both growing.
ISSN:1939-8123
2327-8250