EFFECT OF STOCK BUYBACKS ON STOCK PRICE, EARNINGS, AND DIVIDEND: AN EMPIRICAL STUDY.

In this study, we use time series analysis to examine the long-term relationships of buybacks and stock price, earnings per share, and dividend payout for individual firms listed on the Dow Jones Industrial average. If a relationship exists, it is expected to be positive for stock price and earnings per share and negative for dividend payout. Results from the time series models showed that there were few firms with a significant relationship. Only five firms showed a significant positive relationship between share buyback and stock price, and two firms showed a positive relationship between buyback and earnings per share. Furthermore, only two firms showed a negative relationship between buyback and dividend payout. The weak evidence for a long-term impact of buybacks supports the argument that buybacks do not contribute significantly to the financial strength of a firm and to its market performance. [ABSTRACT FROM AUTHOR]