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Justin Fox

Critics of Stock Buybacks Will Outlast Coronavirus

Companies that receive federal aid won’t be able to repurchase shares. Here’s how we got to that point.

When buybacks really came into fashion.

When buybacks really came into fashion.

Source: AFP/Getty Images

Corporations that receive aid from the federal government as part of the coronavirus legislation passed by Congress and signed into law by President Donald Trump last week are banned from purchasing their own shares until a year after they’ve paid taxpayers back. This isn’t quite the end to buybacks that some have called for in recent years, but it is a notable development for a practice that has since the early 1980s become a pretty major use of corporate cash.

How major? Since 2010, buybacks have consumed about half the free cash flow of the companies in the Standard & Poor’s 500 Index. For all U.S. nonfinancial corporations, they’ve averaged a little over 2% of gross domestic product during that period.