How Share Buybacks Help Companies Stay in the Stock Market Longer

What is it about?

This paper asks a simple question: does the way companies return cash to shareholders help them stay listed on the stock market for longer? The authors study 1,200 US companies from 2000 to 2020 and compare two common payout methods, regular dividends and share buybacks. Dividends tend to behave like a promise that repeats every year, so cutting them can alarm investors. Buybacks are easier to start and stop, so managers can scale them up in good times and pause them when money is tight. Using survival style statistics that track who leaves the market and when, the study finds that firms that lean more on buybacks than on dividends are less likely to be delisted for distress or failing listing rules. The pattern is strongest for companies that face financing frictions, for example those that find it costly to raise outside funds, because payout flexibility helps them conserve cash when shocks hit and then resume distributions when conditions improve. The result holds after many checks, including methods that balance firm characteristics, instruments that address cause and effect concerns, and a test around the 2003 US dividend tax cut that changed incentives. In plain terms, keeping payouts flexible appears to act like financial shock absorbers, which helps companies survive longer in public markets and may be relevant for managers, investors, and policymakers who worry about the long run health of listed firms.

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Photo by VD Photography on Unsplash

Photo by VD Photography on Unsplash

Why is it important?

This work matters because it answers a simple, real-world question that managers, investors, and policymakers are actively arguing about right now: do buybacks help or hurt a company’s staying power in public markets. It is unique because it connects payout mix to the concrete outcome that everyone cares about, market survival, rather than to short-term prices or earnings, and it does so with a large sample of 1,200 US firms across two turbulent decades that include the dot-com bust, the global financial crisis, and the COVID period. It is timely because buybacks are under fresh policy scrutiny after the CARES Act and new taxes and proposed restrictions, so evidence about whether payout flexibility helps firms weather shocks is directly relevant to current rules and corporate decisions. Methodologically, the study speaks to skeptics by using multiple plain-English checks to strengthen causality, for example it balances treated and control firms to make them comparable, uses instruments to separate cause from correlation, and leverages the 2003 dividend tax cut as an outside shock, and the results line up in the same direction. The paper also shows where the effect is strongest, among financially constrained firms that most need the option to turn the payout tap down when cash is scarce, which provides a clear mechanism and practical guidance for CFOs deciding between dividends and buybacks. For readers, the takeaway is actionable and easy to remember, keeping payouts flexible works like a shock absorber that helps companies stay listed longer, and that makes the piece valuable to a broad audience that includes finance practitioners, regulators, and long-term investors looking for resilient firms.

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