There are so many compelling reasons to ban share buybacks as the destructive, wasteful, market manipulation that it is–the egregious abuse of trust by insiders selling their shares into the artificial buying strength created is just one. Ethics must be demanded by legislation, regulation, enforcement and prosecution of the individual directing minds behind the corporate veil. See SEC commissioner’s report reveals a ‘very troubling’ pattern in stock buybacks and insider selling:
“If executives believe a buyback is the right thing to do, they should hold their stock over the long term. Instead, we found that many executives use buybacks to cash out. That creates the risk that insiders’ own interests — rather than the long-term needs of investors, employees, and communities—are driving buybacks,” Jackson wrote.
What’s more, Jackson found that the stock price of those companies underperformed in the long run. Specifically, companies with insider sellers underperform other companies by more than 8 percentage points, Jackson’s research found…when executives sell into a buyback, the buyback is more likely to produce a short-term. stock-price pop rather than a long-term, sustainable value increase. The difference in performance between buybacks with executive cashouts and (those without is meaningful: ninety days after the buyback announcements, firms with insider cashouts underperform the other firms we study by more than 8%.”
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