Tag: accelerated share repurchases

Comp Committees take note: stock buybacks as a mechanism for manipulation

You’ve surely seen all the press about companies spending much of their savings from the 2017 Tax Cuts and Jobs Act on stock buybacks. See, for example, this article.   And this article reports on a JP Morgan prediction for this year of over $800 billion in stock buybacks.  According to this article in CFO.com, S&P 500 firms repurchased $166.3 billion worth of shares just during the first quarter of 2018, up 18.7% from a year ago. A common rationale for conducting a stock buyback is that the shares are undervalued—thus signaling optimism about the company’s future. In addition, buybacks are often viewed as a useful way to provide shareholders with a cash distribution or to offset dilution.   However, in some cases, the author of this study contends, the real motivation may be more opportunistic—managing EPS and increasing executive compensation, regardless of the operational success of the company, where EPS is a performance measure.  Comp committees: take note.