As we previously discussed, the use of share buybacks has accelerated in recent years, both in Canada and the United States. This has sparked anxious debate over the extent to which buybacks can form part of an effective long-term growth strategy. Particularly in the United States—where buybacks hit a record of more than $1 trillion USD in 2018 following tax reforms—commentators have blamed buybacks for various ills, including wage stagnation, income inequality, and underinvestment in R&D. In response, some U.S. legislators have sought to curb their use, such as by tying buybacks to conditions including paying employees a certain hourly wage, and providing a minimum number of paid sick days. What motivates buybacks in the first place? Simply put, share buybacks are used to return cash to shareholders, and are therefore an alternative to paying a dividend. Typically, buybacks are used during periods in which other investment opportunities (such as…
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