Buybacks to Bailouts: Firm Behavior and Implications for Financial Instability
Zpětné odkupy akcií a implikace pro finanční stabilitu
diploma thesis (DEFENDED)

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http://hdl.handle.net/20.500.11956/127909Identifiers
Study Information System: 224670
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- Kvalifikační práce [18205]
Author
Advisor
Referee
Dědek, Oldřich
Faculty / Institute
Faculty of Social Sciences
Discipline
International Economic and Political Studies
Department
Institute of Economic Studies
Date of defense
18. 6. 2021
Publisher
Univerzita Karlova, Fakulta sociálních vědLanguage
English
Grade
Excellent
Keywords (English)
Financial instability, Capital Markets, Federal Reserve, Share Repurchase, Corporate Debt, Leverage, Buyback, Free Cash Flow BailoutShare repurchases reached a decade-high level in 2019, just as US equity indices reached a historical zenith, a move in tandem that supports more than merely a correlative relation. However, this relationship moves beyond that of just a close tandem move in indices alongside share repurchases, but to the behavior of firms which began to leverage themselves in order to promote the evermore profitable strategy of large buyback programs. Those repurchases indicate an idiosyncratic and procyclical leveraging that, while much smaller in scope and less combustible by lack of derivative amplification, led to the gorging on unsustainable debt described by Hyman Minsky and experienced in the Great Financial Crisis in the banking industry. In this case, the 'Minsky moment' that may have inevitably popped the self-promotion bubble came in the form of the 'black swan' event of the coronavirus outbreak. This paper aims to historically frame the issues, with delimitation of the effect of buybacks from 2009 to early 2020 with scant reference to historical factors influencing the increased usage of share repurchase programs. The analysis within this historical scope will reflect empirical measures on the market-wide level of share buybacks and debt levels alongside the concurrent equity index acceleration....