Keywords: Share repurchases, stock options, expected returns
Abstract: We estimate the effects of share repurchases and employee stock option
exercises on net
share retirements for large S&P 500 companies. We find that, over the past five
repurchases have reduced shares outstanding 2 percent annually; but, owing to
the exercise of
employee stock options, only about half of those shares were actually retired.
Given the recent
pace of employee stock option grants, and assuming that equities continue to be
priced at about
30 times earnings, our analysis suggests that the pace of net share retirements
will fall well below
the pace of the last few years, unless corporations use nearly all their
earnings to fund
shareholder payouts. Moreover, over the long haul, assuming corporations need
to retain 40 to
50 percent of their earnings to invest and grow at historical rates, the
long-run average pace of
net share retirements is likely to fall to 1/2 percent or less.
Full paper (43 KB PDF)
Home | FEDS | List of 1999 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: December 21, 1999