Share Buybacks and Capital Structure: The Meb Faber Show Interview

The episode of The Meb Faber Show centers on an early book about share repurchases called The Repurchase of Common Stock, written roughly 50 years before the 2026 recording. Meb Faber brings the author back to discuss how this obscure work ended up influencing corporate practice.

According to the guest, the book argued that U.S. companies had become structurally under-leveraged after World War II and should consider borrowing to repurchase shares. At the time, he recalls, this was seen as a groundbreaking suggestion because buybacks had largely fallen out of common use.

The interview’s core claim is historical: the speaker says repurchases were not some recent invention, but an established, if neglected, corporate finance tool that later re-emerged as mainstream. The conversation frames modern buyback debates against this longer backdrop rather than treating them as a 21st‑century phenomenon.

The guest explains that his original thesis emerged just a few years after graduating from Harvard Business School. He recounts that during World War II, American companies found it difficult to raise equity, so they repeatedly turned to borrowing because much of their business came from government contracts, which he characterizes as relatively safe.

From about 1946 to 1965, he says these firms systematically paid that wartime debt down. Over time, the process allegedly went so far that many balance sheets became, in his words, "way under-leveraged" and "inappropriate for the equity investors." His argument at the time was that companies should take on some debt and repurchase shares to restore a more efficient capital structure and enhance long-term returns.

According to the guest, this idea was considered innovative because no one had seriously advocated large-scale, programmatic repurchases for decades. He portrays his recommendation as a capital structure optimization, not a short-term earnings management tactic, and emphasizes its focus on long-term shareholder outcomes.

The guest recalls that a professor at Syracuse University contacted him after doing parallel research on repurchases. They combined their work into the book The Repurchase of Common Stock, which he says helped crystallize the concept for practitioners.

He then describes how traders at Goldman Sachs seized on the book as external validation. According to his account, Goldman’s trading desk began approaching corporations with an offer: for a commission he recalls as "40 cents a share," they would help companies buy in their own stock when management was "over equity." He says Goldman mailed copies of the book to around 1,000 corporations as a legitimizing document for this pitch.

Although he notes that the book itself sold poorly and never generated royalties for the authors, the guest views the broader outcome as a success. He claims share repurchases have since grown into a boom, estimating that total buybacks "goes over a trillion dollars today" and are now widely accepted as a normal part of what he calls sensible management.

Faber raises the modern narrative that stock repurchases were once "illegal" or were virtually nonexistent until a couple of decades ago. He counters this view by pointing to the existence of the guest’s 50‑year‑old book and an accompanying article, arguing the practice has a longer documented history.

The guest agrees and adds that investors like Warren Buffett have discussed buybacks in annual letters going back to the 1980s. Faber notes that, in most years by his count, average buybacks now outpace dividends and have become a major part of corporate culture, spreading beyond the United States into markets such as the UK, Japan, Korea, and China.

On how companies handle cash, the guest contends that "company management is really quite sharp" and usually focused on the long term. He acknowledges occasional missteps that attract media attention but characterizes most capital return decisions—especially board-driven repurchase authorizations—as disciplined, somewhat formulaic processes meant to serve shareholders.

The guest offers his personal perspective as an investor, saying he would rather see more share buybacks than higher dividends, largely because of how they affect long-term value. However, he recognizes that many individuals love receiving dividends, viewing them as "free money" and a part of family budgeting and spending.

He also mentions that some institutions still treat dividend payouts as more valuable than stock price accretion when assessing endowment distributions. In his view, this is ultimately a matter of opinion, but he argues that, particularly after tax, the long-run accretion of stock value matters more than the cash yield.

Faber frames this as an ongoing "battle" over how corporate cash should be deployed, and the guest is cautiously optimistic that education and experience can improve general understanding. He seems encouraged that repurchases have become embedded in "corporate finance kind of 101," but he implies that investor preferences and tax treatment will continue to shape how firms balance buybacks against dividends.