Misperceptions Surrounding Corporate Cash Spending Priorities and The Economics of Share Repurchases

Goldman Sachs

David Kostin

Research

16 Pages

Goldman Sachs explores the mechanics, timing, and market impact of corporate buybacks, framing them as one of the most influential yet misunderstood drivers of equity performance. It highlights how buybacks can amplify EPS while masking underlying fundamentals, and argues that timing and execution matter far more than headline authorization sizes.

Key Takeaways

Procyclical Buyback Behavior: Companies tend to repurchase more stock after strong performance, with activity rising alongside markets rather than during downturns, limiting contrarian value creation.
EPS Engineering Effect: Reducing share count can boost EPS by several percentage points annually, even when net income growth is flat or declining.
Market Support During Stress: Buybacks have historically accounted for a significant portion of net equity demand, at times exceeding 100% of net purchases during market drawdowns.
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