Wall Street Set for More Turmoil as Stocks Waver: Live Updates

Now, after a stock market crash that has pushed prices back to where they were in early 2017, almost all that money is gone, at least for the moment.

The penchant of American corporations for buying back their own shares — it is largely an American phenomenon — became a political football in recent years. The Trump administration sold its vast overhaul of the American tax system, which was signed into law in December 2017, as a measure that would supercharge capital investment from companies, increasing productivity and wages for workers.

The tax overhaul left major American companies flush with cash, and set off a record amount of share buybacks by SP 500 companies. Buybacks hit a record in 2018, with net buybacks accounting for roughly $600 billion in outlays from companies, according to Goldman Sachs. The full numbers for 2019 are still coming in but are estimated to be around $480 billion.

Defenders of buybacks say it is an efficient way for companies to return money to shareholders that they would not otherwise know how to invest efficiently.

Critics say the practice is merely a way to inflate share prices and burnish key metrics, such as earnings per share, which look better because buybacks reduce the number of shares a company has. They point out that companies can always pay shareholders with dividends, which are checks issued directly to stock owners, rather than by buying back shares.

Reporting and research were contributed by Conor Dougherty, Emily Flitter, Isabella Kwai, Jack Ewing, Carlos Tejada, Heather Murphy, Matt Phillips, Jeanna Smialek and Jim Tankersley.

Article source: https://www.nytimes.com/2020/03/19/business/stock-markets-today-coronavirus.html