Going Backward to Go Forward: The Curious Performance Impact of Buybacks
Off-market share buybacks are a curious form of Australian corporate action: What rational investor would deliberately elect to sell back shares at a price below market value? The answer lies in the after-tax value of the transaction. A superannuation fund investor goes backward in pretax terms to go forward in after-tax terms.
This paper addresses a lack of understanding of the precise impact of buyback participation on Australian equity performance reports. For decision makers to execute their strategies properly, performance reporting must capture buyback impacts appropriately and treat participating managers fairly.