Share Buybacks - another Problem

The motives behind share buybacks - and their positive/negative consequences - have received much attention during the recent past. But one aspect that is neglected is the treatment of losses when shares are bought back at ever-rising prices and the share price subsequently declines. It appears that current accounting rules allow these notional losses to disappear in a black hole. While this may be within the rules it still prevents management from being taken to task for a failed policy. Basically it allows companies to squander the shareholder's equity worth without punishment. Money gets redistributed from the majority of continuing or permanent shareholders to those who have cashed out at elevated prices.


Post a comment