The pace of share repurchases accelerated strongly in 2005, especially in the fourth quarter, when they exceeded $ billion at an annual rate. These accelerated shareholder payouts were to be expected given that repatriated profits from firms’ foreign operations had become available to finance investment, acquisitions, and retire debt. In addition, signs of changing business attitudes towards expansion have emerged.
Merger and acquisition activity picked up markedly in the second half of 2005 and continued to accelerate in the first half of 2006, also contributing to the drawdown of cash. Cash-financed mergers in the past four quarters resulted in a retirement of public equity of more than $ billion, four to five times the average rate since the peak of the previous expansion.