The Rise of Share Buyback Investing: A Literature Review
Abstract:
This paper investigates the strategic role and financial implications of share buybacks, a practice that has evolved from an infrequent capital allocation tool to a significant component of corporate finance. Through an extensive review of theoretical frameworks, empirical literature, and detailed historical and contemporary case studies— including the early approaches of Henry Singleton at Teledyne, and later practices used by Warren Buffett at Berkshire Hathaway, and the consistent capital allocation at AutoZone—it assesses the effectiveness of buybacks in enhancing shareholder value. The findings underline that buybacks have evolved as an integrated practice in corporate finance and when executed with rigorous valuation discipline, strategic timing, have been associat ed with outperformance relative to broader benchmarks. Moreover, the paper evaluates the recent emergence of buyback-focused exchange-traded funds (ETFs), highlighting their distinct methodology to capture returns from companies with strong buyback programs. This synthesis discusses motivations for corporate buybacks, advocating for a nuanced understanding of their effectiveness as strategic financial instruments.
