Finance and Economics Discussion Series

<p>We estimate the effects of share repurchases and employee stock option exercises on net share retirements for large S&P 500 companies. We find that over the past five years gross repurchases have reduced shares outstanding 2 percent annually; but owing to the exercise of employee stock options only about half of those shares were actually retired. Given the recent pace of employee stock option grants and assuming that equities continue to be priced at about 30 times earnings our analysis suggests that the pace of net share retirements will fall well below the pace of the last few years unless corporations use nearly all their earnings to fund shareholder payouts. Moreover over the long haul assuming corporations need to retain 40 to 50 percent of their earnings to invest and grow at historical rates the long-run average pace of net share retirements is likely to fall to 1/2 percent or less.</p><p>This work has been selected by scholars as being culturally important and is part of the knowledge base of civilization as we know it. This work was reproduced from the original artifact and remains as true to the original work as possible. Therefore you will see the original copyright references library stamps (as most of these works have been housed in our most important libraries around the world) and other notations in the work.</p><p>This work is in the public domain in the United States of America and possibly other nations. Within the United States you may freely copy and distribute this work as no entity (individual or corporate) has a copyright on the body of the work.</p><p>As a reproduction of a historical artifact this work may contain missing or blurred pages poor pictures errant marks etc. Scholars believe and we concur that this work is important enough to be preserved reproduced and made generally available to the public. We appreciate your support of the preservation process and thank you for being an important part of keeping this knowledge alive and relevant.</p><br>