You start a business and have partners who have bankrolled you. They own a percentage of the company. At some point, you want to buy out their share. But the government just banned it. You can only dilute your share, never increase your ownership stake.
Does that make sense? Because that's what banning stock buybacks will achieve.
> Companies use stock buybacks to give away massive amounts of capital.
It's one use of stock buybacks, amongst many. Companies also do buybacks to get a greater ownership stake. They also do it if they think their stock is undervalued.
Banning buybacks is throwing all good options out to prevent a few bad options. It's a kneejerk reaction.
My company has done buybacks multiple times. It barely made any impact on the stock price. The much believed notion that it manipulates stock prices ... needs hard data. Look at all the companies who've done it in the last 30+ years - how many of them saw a significant gain in stock price in the short term?
I can agree that these transactions need to be regulated. But banned? Nope. For me, though, reform is useless unless they solve the problem I mentioned above: That it is currently legal for me to get an ownership stake in a company and not be entitled to anything in return. Shareholders should have a contractual right to returns that is independent of the stock price.
> Companies also do buybacks to get a greater ownership stake.
Greater ownership stake in what? Companies, at least in the US, can't own themselves. Stock buybacks merely reduce outstanding shares effectively increasing the percentage of the company owned remaining shareholders.
If we eliminated stock buybacks tomorrow, little would be lost other than insiders wouldn't be able to use buybacks to unduly enrich themselves and people having to pay some capital gains taxes.
Does that make sense? Because that's what banning stock buybacks will achieve.
> Companies use stock buybacks to give away massive amounts of capital.
It's one use of stock buybacks, amongst many. Companies also do buybacks to get a greater ownership stake. They also do it if they think their stock is undervalued.
Banning buybacks is throwing all good options out to prevent a few bad options. It's a kneejerk reaction.
My company has done buybacks multiple times. It barely made any impact on the stock price. The much believed notion that it manipulates stock prices ... needs hard data. Look at all the companies who've done it in the last 30+ years - how many of them saw a significant gain in stock price in the short term?
I can agree that these transactions need to be regulated. But banned? Nope. For me, though, reform is useless unless they solve the problem I mentioned above: That it is currently legal for me to get an ownership stake in a company and not be entitled to anything in return. Shareholders should have a contractual right to returns that is independent of the stock price.