[smallgovt]

> How Corporations Scam Their Shareholders and Screw over Workers

I don't see how workers are getting screwed. The main charge in the article is that executives take advantage of positive signalling around share buybacks to boost share price prior to selling shares. If this claim is true, the share price should go back down once more material public information is released that suggests a lower valuation. The losers in this scenario are shareholders who purchased in the short period following the buyback. Although some workers may fall into this group, the vast majority do not.

Also, the article implies that companies should go back to issuing dividends over share buybacks. This doesn't make sense. The tax advantage nature of share buybacks far outweighs the ill-gotten gains executives reap from this strategy.

On average, share price increases ~2% following a buyback announcement. So, while execs can 'scam their shareholders' with this scheme, the loss to shareholders is nowhere near the ~10-20% benefit shareholders get by realizing gains as capital gains instead of income.

[clairity]

> "I don't see how workers are getting screwed."

FTFA:

> "Pressure to maintain corporate payouts may also be responsible for larger-than-necessary layoffs during the COVID-19 crisis." (only common employees get laid off)

> "...reduce or postpone investment spending for new projects, research and development, advertising and maintenance" (less money to employees, more to executives)

> "Buybacks also tend to raise corporate indebtedness and leverage, which can increase bankruptcies..." (borne by common employees, not executives)

also, employees other than executives cannot execute this sort of pump'n'dump.

and that's just the immediately obvious stuff.

[smallgovt]

All of these arguments apply to dividends as well as share buybacks. And, therefore, do not support a shift back to dividends.

If you compare the dividend yield of the s&p500 from 1980 to today, it dropped by around 3%. Based on today’s market cap, that 3% equates to around $900b. In the last year, we’ve had around $700b in share buybacks for s&p 500 companies. These data suggest that the shift to buybacks did not negatively impact liquidity, r&d, or overall ability to maintain employment levels.

[clairity]

> "All of these arguments apply to dividends as well as share buybacks."

no, adverse incentives (like here, where buybacks preferentially benefit executives) create moral hazards, which economic research has shown time and again. there's even a specific name for this particular issue: the principal-agent problem[0].

in the idealized case, you don't return money to investors if you have positive npv projects on the table (meaning more capital and less risk directed toward common employees as a side effect), but you will if you can enrich yourself regardless of those projects. dividends don't create these perverse incentives but buybacks in the current environment do.

[0]: https://wikipedia.org/wiki/Principal%E2%80%93agent_problem

[smallgovt]

The argument you’re now outlining is not a subset of the arguments you previously listed (and I was referencing).

I agree buybacks create adverse incentives. As I’ve stated elsewhere in this thread, the damages of these adverse incentives are outweighed by the tax advantages buybacks have over dividends.

[clairity]

to be clear: the tax advantages are the adverse incentives.

[ogre_codes]

Many companies buy back shares when it doesn't really make sense. For example companies with heavy debt loads buying back shares using leverage. The airlines were pretty bad about this.

Management often has poor/ short term motivations based on short term share price which can be devastating to companies.

[smallgovt]

> Many companies buy back shares when it doesn't really make sense

Many companies also issue dividends when it doesn’t really make sense.

The overall level of shareholder compensation (dividends + buybacks) has not increased over the last couple decades.