A value indicator: Stock buybacks

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When a company performs poorly, takeovers aren’t the only way that investors can profit. Indeed, companies that regularly buy back their own shares not only thwart takeover attempts by leaving less potential for value improvement by an acquirer, they increase the value of shares. Studies have shown that repurchase announcements raise stock values roughly 3 percent and that share prices after buybacks tend to continue to escalate for a year or two, on average, says Matt Billett, professor of finance at Tippie College of Business at University of Iowa.

Billett, with the late Hui Xue of Kansas State University, studied 23,000 companies, 2,544 of which had engaged in open-market stock repurchases.