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March 9, 2019 | Abuse of Trust and Share Buybacks Go Hand in Hand

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel ( Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog:

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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March 9th, 2019

Posted In: Juggling Dynamite

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