Share Buybacks are Market Manipulation with Better Public Relations

Buybacks are, in most cases, a mechanism for management to enrich themselves at the expense of long-term shareholders while presenting the exercise as capital discipline.  The fact that regulators have permitted this does not make it acceptable.  The fact that it is widespread does not make it honest.

What a Buyback Does

When a company buys back its own shares, it deploys corporate cash — cash that belongs to all shareholders — to purchase shares in the open market.  The shares purchased are typically retired, reducing the share count and inflating earnings per share without any improvement in the underlying business.  No additional product sold, no margin improvement, no additional dollar of profit generated.  The EPS rises because the denominator shrank.  The business is identical to what it was before.  The management team, whose compensation is tied to EPS targets, has just awarded itself a pay rise funded by the company’s own cash.

The S&P 500 companies spent US$922 billion on share buybacks in 2023 and US$790 billion in 2024.  Over the decade from 2013 to 2023, S&P 500 companies returned US$6.3 trillion to shareholders through buybacks — more than they spent on capital expenditure and research and development combined.  The American economy’s infrastructure crumbled, its workforce productivity stagnated, and its manufacturing base hollowed out while its largest corporations spent their cash engineering their own share prices upward.  This is not capital allocation.  It is financial cosmetics.

The US Case: Boeing

Boeing Company provides the most comprehensively documented case study in the destructive potential of buyback-driven capital allocation.  Between 2013 and 2019, Boeing spent US$43 billion repurchasing its own shares.  This programme was funded partly through debt issuance — the company borrowed money to buy back its own stock.  Over the same period, Boeing cut 12,000 engineering jobs, outsourced critical engineering functions to suppliers with inadequate oversight, and deferred the development investment that an aviation manufacturer at the frontier of technology requires.

The 737 MAX entered service in 2017.  Its Manoeuvring Characteristics Augmentation System — a flight control software modification designed to compensate for an aerodynamic characteristic introduced by a heavier engine — failed in two successive crashes, killing 346 people.  The subsequent investigation identified systematic failures in Boeing’s engineering culture, safety oversight, and the relationship between its engineering and production functions.

The Federal Aviation Administration, the Department of Justice, and multiple congressional investigations documented that Boeing had prioritised cost reduction and schedule pressure over the engineering rigour that its products require.  The connection between the buyback-driven capital allocation and the degradation of engineering culture is not direct — correlation is not causation — but the coincidence of a US$43 billion buyback programme and a catastrophic engineering failure in the same decade at the same company, after the same cost-cutting exercises, is not one that responsible governance should dismiss.

Boeing’s share price, which reached US$440 in March 2019 just before the second crash grounded the fleet, traded at US$165 in October 2026.  The US$43 billion spent buying back shares at elevated prices destroyed shareholder value.  The capital deployed on engineering investment and workforce development would not have.

The Indonesia Case: State-Owned Enterprises and the Buyback Pressure

Indonesia’s state-owned enterprises — Bank Rakyat Indonesia Tbk, Bank Mandiri Tbk, Telkom Indonesia Tbk — have faced recurring pressure from the government, as controlling shareholder, and from institutional investors to deploy surplus capital.  The buyback versus dividend debate in the Indonesian context is complicated by the government’s dual role as shareholder and policy actor.

Bank Rakyat Indonesia conducted a buyback programme in 2020 and 2021 totalling Rp3 trillion — deployed during a period when the bank’s non-performing loan ratio was rising, and its micro-lending portfolio was under stress from the COVID-19 economic contraction.  The capital deployed on the buyback could not simultaneously be deployed on loan loss provisioning or loan book growth.  The signal the buyback sent — that the bank had surplus capital — contradicted the credit stress that its micro-lending portfolio was experiencing.  This is the governance problem: when management compensation is tied to share price performance, and when the government as controlling shareholder has an interest in maintaining the share price of its listed holdings, the incentive to deploy capital on buybacks rather than productive investment is structural.

Telkom Indonesia’s buyback programme in 2023 — Rp2.7 trillion deployed over twelve months — occurred simultaneously with the company’s stated need for capital investment in its fibre broadband network expansion.  A company that claims to need capital for network investment while simultaneously spending capital on share buybacks is, at minimum, presenting an inconsistent capital allocation story.

The Singapore Case: Jardine Matheson and the Delisting Buyback

The most instructive Singapore-listed buyback case is not a conventional market buyback but rather the privatisation mechanism used by Jardine Matheson Holdings to delist its subsidiary Jardine Strategic Holdings in 2021.  Jardine Strategic owned 84 per cent of Jardine Matheson.  Jardine Matheson owned 58 per cent of Jardine Strategic.  This cross-shareholding structure had existed for decades as a takeover defence.  In April 2021, Jardine Matheson offered to buy out Jardine Strategic’s minority shareholders at US$33 per share — a price that minority shareholders’ advisers argued significantly undervalued the portfolio, which included stakes in Hongkong Land, Dairy Farm International, Mandarin Oriental, and Jardine Cycle & Carriage.

The offer was structured such that the minority shareholders — holding 16 per cent of Jardine Strategic — had limited realistic alternatives.  The Jardine family and Matheson trusts controlled the outcome.  The buyout price represented a discount to the sum-of-parts valuation that multiple independent analysts calculated.  The minority shareholders received their consideration.  The Jardine family collapsed the cross-shareholding structure and eliminated the minority at a price of their choosing.  This is the buyback mechanism at its most structurally disadvantageous for minority shareholders: the controlling shareholder deploying corporate resources to eliminate the minority at a valuation set by the party with the structural advantage.

Dividends are a Better Signal

A dividend cannot be faked.  This is its fundamental advantage over a buyback.  A buyback can be timed to coincide with management share option vesting schedules, funded through debt in ways that inflate short-term EPS while building long-term balance sheet risk, or executed at overvalued prices that destroy capital while appearing to return it.  Each of these distortions is documented in the academic literature and in actual corporate history.  A dividend is cash.  It leaves the company’s bank account.  It arrives in the shareholder’s account.  It can be reinvested or spent at the shareholder’s discretion.  It is transparent in a way that a buyback programme — which may or may not be executed, may be suspended without notice, and is timed entirely at management’s discretion — is not.

DBS Group Holdings provides the Singapore case study.  DBS has consistently grown its ordinary dividend from S$0.60 per share in 2014 to S$2.16 per share in 2024 — a 260 per cent increase over the decade.  This dividend growth reflects earnings growth: DBS’s net profit grew from S$3.2 billion in 2014 to S$10.3 billion in 2024.  The dividend is not financial engineering.  It is the transmission mechanism through which genuine value creation reaches shareholders.  DBS has conducted buybacks — it repurchased S$3 billion in shares between 2023 and 2025 under MAS approval — but the primary return mechanism has been the dividend.  The management’s primary accountability to shareholders runs through the dividend, not the buyback.  A company that cuts its dividend has made a visible, public acknowledgement that its earnings trajectory has changed.  A company that suspends a buyback has made a much less visible decision that the market processes with considerably less clarity.

OCBC Bank’s dividend policy tells a similar story.  OCBC’s dividend per share grew from S$0.34 in 2014 to S$0.70 in 2023, with a special dividend of S$0.04 declared alongside the ordinary dividend in 2023.  The dividend growth trajectory is a more reliable indicator of the bank’s earnings quality than any EPS improvement that a buyback could engineer.

Berkshire Hathaway: The Exception

Warren Edward Buffett, Chairman and Chief Executive Officer of Berkshire Hathaway, avoided dividends for decades on the explicit grounds that he could deploy capital more productively than shareholders could by reinvesting it themselves.  This is the one coherent argument for retaining earnings rather than returning them: when the management can genuinely compound capital at above-market rates of return, retention is more valuable to shareholders than distribution.

Berkshire Hathaway demonstrated this proposition over fifty years.  Its book value per share grew from US$19 in 1964 to US$359,000 in 2024 — a compound annual growth rate of 19.8 per cent.  The retained earnings built the portfolio.  The portfolio built the returns.  The shareholders who held throughout compounded alongside Buffett rather than receiving periodic distributions at lower reinvestment rates.  This is the exception.  The exception requires a management team of Buffett’s capability, integrity, and demonstrated long-term record.  Most companies do not have this.  Most companies that retain capital rather than distributing it do not compound it at above-market rates.  They accumulate it on the balance sheet, attract activist investor attention, and are then pressured to deploy it through buybacks.

The activist investor pressure on Berkshire Hathaway since Buffett’s transition planning became public illustrates the problem.  Berkshire held US$325 billion in cash and short-term investments as of mid-2026 — a position that activist shareholders have characterised as capital inefficiency.  Their solution, in most cases, is a buyback programme.  Berkshire Hathaway has conducted buybacks —US$2.9 billion in 2024 — but selectively, at prices Buffett judged to be below intrinsic value.  This is the only condition under which a buyback makes analytical sense: when the management has a reliable estimate of intrinsic value, and the market price is demonstrably below it.  The activist shareholders pressing for a structural buyback programme are, in effect, asking Berkshire Hathaway to abandon the capital discipline that produced the record they are attempting to monetise.

Temasek Holdings and GIC Portfolio Companies

Temasek Holdings — Singapore’s state investment company — holds significant stakes in companies where the dividend versus buyback question has direct relevance to Singapore’s public interest in the management of its national reserves.

Singapore Airlines, in which Temasek Holdings holds 55.8 per cent, resumed dividends in fiscal year 2024 after the COVID-19 pandemic forced their suspension.  The resumption of the dividend — S$0.10 per share for FY2024 — was a more meaningful signal of the airline’s recovery trajectory than any EPS improvement through share reduction would have been.  Singapore Airlines operates in a capital-intensive industry where genuine earnings recovery requires fleet investment, route development, and workforce capability.  The dividend signals that the business is generating genuine surplus cash above these requirements.  A buyback at the same stage of recovery would have signalled capital deployment away from the business investment that the recovery requires.

CapitaLand Investment, in which Temasek Holdings holds 22 per cent, is structured as a capital-light asset management and real estate investment platform.  Its fee income model generates recurring cash flows that support a consistent dividend.  The company’s dividend policy — targeting 6 Singapore cents per share annually — provides the income return that its real estate investment trust investor base requires.  A buyback programme in place of this dividend would not serve the income-oriented investor base that the company’s listing rationale and shareholder mix reflect.

GIC’s portfolio companies — largely unlisted private equity and infrastructure investments — return capital through distributions and asset sales rather than open-market buybacks.  The private market equivalent of a dividend — the cash distribution — is the mechanism through which GIC’s investment performance ultimately flows through to Singapore’s fiscal position and the reserves that underpin the Singapore dollar.  The absence of the open-market buyback mechanism in the private investment context is not an accident.  It reflects the reality that private market capital allocation does not benefit from the short-term EPS engineering that the listed market permits.

The Regulatory Dimension

Share buybacks were illegal in the United States under Rule 10b-18 of the Securities Exchange Act until 1982 — when the Securities and Exchange Commission created a safe harbour that permitted companies to repurchase their own shares without being charged with market manipulation.  The deregulation of buybacks in 1982 coincided with the beginning of the shareholder primacy movement — the doctrine, associated with Milton Friedman’s 1970 New York Times essay and later with the Jensen and Meckling principal-agent theory, that the sole legitimate purpose of corporate management is to maximise shareholder value.  The buyback became the primary instrument of this doctrine.

The result, over forty years, is the documented hollowing-out of American corporate investment in favour of financial engineering.  The S&P 500’s aggregate research and development expenditure as a percentage of revenue has declined.  Capital expenditure as a percentage of operating cash flow has declined.  The share of corporate profits returned to shareholders through buybacks has increased from 5 per cent in 1982 to 56 per cent in 2023.

The United States Inflation Reduction Act of 2022 introduced a 1 per cent excise tax on corporate share buybacks — a modest acknowledgement that the regulatory framework had overcorrected in 1982.  Senator Ronald Lee Wyden, then Chair of the Senate Finance Committee, proposed a 2 per cent tax rate, which was reduced to 1 per cent in the final legislation.  The Biden administration proposed increasing it to 4 per cent.  The Trump administration has shown no inclination to do so – obviously.

Singapore’s regulatory framework does not impose equivalent restrictions or taxes on buybacks, though the MAS requires listed companies to obtain shareholder approval for buyback mandates and imposes limits on the volume and price of buyback transactions.

The Contention

Buybacks are not inherently indefensible.  They make sense when a company has surplus capital, few attractive investment opportunities, and shares trading demonstrably below intrinsic value.  They are indefensible as a routine capital return mechanism — which is what they have become in the US market and are increasingly becoming in Singapore and across Asia.  The routine deployment of corporate cash on buybacks, in preference to dividends, investment, workforce development, or debt reduction, reflects a management culture oriented toward short-term share price performance and compensation metrics rather than long-term value creation.

The dividend is an honest instrument.  It declares what the company believes it has earned in excess of what it needs.  The buyback is a declaration about what management believes the share price should be — and it is made by the people whose compensation depends on the share price being at that level.

These are not the same signal.  The market should not treat them as equivalent.  Shareholders should not accept them as equivalent.  And regulators, in Singapore and elsewhere, should examine whether the current framework sufficiently constrains the conflict of interest that the buyback mechanism creates between management and the long-term shareholders who are not selling.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code