Stock buybacks in the spotlight

Abstract

Theoretical Basis

The theoretical basis for the case is information asymmetry and signaling theory, with buybacks providing a mechanism for reducing information asymmetry between management and investors. The controversy surrounding buybacks has led to political and regulatory scrutiny, which, consistent with evidence from academic research, may affect corporate behavior.

Research methodology

The compact case is based on secondary, public information about stock buybacks. All sources used are cited in-text, with full citations included in the references section at the end of the teaching note.

Case Overview/Synopsis

Stock buybacks, a means of providing returns to shareholders, have recently received increased scrutiny by politicians, media and shareholder activists. Proponents have argued that buybacks result in efficient allocation of capital by returning funds to shareholders, whereas opponents have criticized buybacks for enriching executives, providing tax advantages to shareholders and contributing to income inequality. Corporations did not curtail their use of buybacks after the Inflation Reduction Act of 2022 imposed an excise tax. The case frames the buyback debate in current events and focuses on the buyback activity of Apple. The case provides students the opportunity to analyze alternative ways that companies can provide returns to shareholders, evaluate impacts of buybacks on corporate stakeholders and appraise the reasons for, and implications of, current controversy regarding buybacks.

Complexity/Academic Level

This compact case is appropriate for upper-level undergraduate or graduate courses in financial accounting, tax and finance. This case provides an opportunity to analyze and evaluate stock buyback decisions in the context of the current controversy related to buybacks.

Citation

Campbell, K., Ellingson, D.A. and Weiss, J.M. (2024), "Stock buybacks in the spotlight", , Vol. 20 No. 5, pp. 1147-1160. https://doi.org/10.1108/TCJ-07-2023-0171