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Shares buybacks (repurchases) are often consider as tax-efficient alternative to dividends. Many academic studies have compared dividends and buybacks, here are my non-scientifics notes.

To me it is a mystery how a company management can convince company owners (shareholders) that the best usage of cash is buyback.

Let's say a company has cash and can spend it to buy a business. Why do you think that the best decision is to buy the own business? The only correct answer in my mind (as a value investor) is " our own business is really good but strongly undervalued now, so it is good time to buy it." But as we know from scholar investigations most companies do buyback in overvalued times. Also many CEO/CFO" are biased and too bullish than consider their company (as were also documented in several academic studies).

For sake of simplicity let consider only 2 categories of companies - industry leaders and non-leaders.
Value metrics of leaders are usually higher than the same metrics for non-leaders, so argument that the leader is undervalued should not fly.
It should be even harder to sell buyback proposal for non-leader because obviously there are better companies on the market in the same and different industries.

To me it is a mystery how a company management can convince legal bodies like SEC that the management does NOT use insider information during buybacks.

Philip Carret in "The art of speculation" published in 1930 wrote
"Management has only so much cash as its disposal. If it pays dividends, I see it as a confession of failure. The company is saying 'We don't know where to invest the money so we'll give it to you,stockholders'".
I'd agree with this statement only with huge provision that management indeed has bullet-proof projects to invest MY (as company co-owner) money to grow the company and had demonstrated such ability. Shares buybacks rarely leads to company grow. Even debt repayment seems me better. Again many companies had terrible timing for shares repurchases I think because their management is biased.

I think at least a Board should propose buyback policy, shareholders should approve it (vote) and only then company can execute the buyback policy.
I think at most that the shares buyback should be again considered illegal activity similar to insider information traiding.

Because of mistake in US tax system (double taxation) shares buyback can be presented as better cash distribution than dividends. This mistake in US taxes must be fixed. While IRS could declare a series of regular repurchases a constructive dividend and tax it as such, I do not know a case in which a share repurchase of a large, publicly traded company has been deemed a constructive dividend by the IRS. In fact, in a number of instances the company actually states in the repurchase announcement that they are repurchasing shares in
lieu of paying dividends (I wonder why the company CFO allows such declaration). Even in these instances the IRS has not declared the repurchase a constructive dividend.
IMO it means that IRS does not do proper work in this case and ordinary people pay more taxes (assuming that total government revenue is constant and if A pays less some has to pay more).

Added 03/07/2012
The following graphs shows how uneffective are companies in buybacks timing.

S&P data

Added 7/11/12
Michael J. Mauboussin resently published a good report "Share Repurchase from All Angles" there he used the same graph as I. He pointed (with Alfred Rappaport) that "Executives should follow the golden rule of share buybacks: A company should repurchase its shares only when its stock is trading below its expected value and when no better investment opportunities are available." I actually promoted the same idea but noted that probability of such event is close to zero (company MUST be the BEST investment opportunity).

Added 7/17/12

1) Jeff Paul posted good buybacks analysis -see seekingalpha.com/article/724601-modeling...

2) Imagine that you are CFO or another top manager of IBM that suppose to propose BoD that to do with cash IBM has. In quarter 1 (Q1) you proposed buy PG shares because PG was strongly undervalued and it was rejected, in Q2 you proposed buy XOM shares because XOM was strongly undervalued and it was rejected, in Q2 you proposed buy MO shares because MO was strongly undervalued and it was rejected, .....
When CEO will fire you? 8-).

Added 12/10/2012

ONEOK Partners (OKS) issued 11/13/2012 press release (finance.yahoo.com/news/oneok-partners-en...) where they wrote "ONEOK Partners, L.P. ... may, from time to time, issue common units... The partnership intends to use the net proceeds from sales under the program for general partnership purposes, which may include, among other things ... repurchases of securities."

Great! A company issues new shares with the goal to buyback shares !!! I do not understand something or this is total absurd!

I guess and hope that nobody just proofreaded the press release, meantime I sold my OKS common units...

Added 12/23/2012

I learn from seekingalpha.com/article/1078931-fiscal-... that Factset prepares good reports on dividends and buybacks:

www.factset.com/websitefiles/PDFs/divide....12

www.factset.com/websitefiles/PDFs/buybac....12

I took Factset buyback data and compared them with S&P prices:

(click to enlarge)

I think this picture tells as again that timing for buybacks is terrible for most of companies. IMO the quasi-fundamental reason is the following - a company has cash after period of good performance and good performance reflects in stock prices so buyback occurs at high P/E. On another side when P/E are low because of whole economy or industry or company issues the company is more reluctant to spend cash and stops buybacks.

Doing buyback company management essentially say "We believe that our stock is the best purchase in whole stock market". How often it can be true?

Added 13 Jan 2013:

Warren Buffet noted: "Many CEOs never stop believing their stock is cheap" according to "How to Make Money in Dividend Stocks: Everything You Need To Get Started in Income Investing (The Art & Science of Investing)" by Edward Croft, Ben Hobson and Dave Brickell