Do corporate insiders use stock buybacks for personal gain?

The Contribution of Shareholder Primacy to the Racial Wealth Gap

“…A variety of economic effects flow from shareholder primacy. One is the downward pressure on worker wages and the loss of worker bargaining power for a share of corporate profits, as corporate leaders downsize and outsource to reduce union power and labor costs more generally (Lazonick & O'Sullivan, 2000;Palladino, 2020Palladino, , 2021b. A second is that shareholder primacy has driven a constant rise in stock market value, even as corporate profits fluctuate and corporate debt increases.…”

“…The S&P 500 Index, considered a benchmark of the state of the capital markets, has been steadily rising, and recovered quickly from the coronavirus-induced crash. Stock buybacks-a practice in which corporations repurchase their own equity on the open market in order to increase the price of remaining shares, without substantive corporate improvements -reached an estimated $800 billion in 2018 (Palladino, 2020(Palladino, , 2021b. This practice will be discussed in more detail below.…”

“…Generally, shareholder payments have been rising as a percentage of corporate assets since the 1980s, mainly driven by a rise in the practice of stock buybacks described above, which reached $6.3 trillion in the decade from 2010 to 2019 (Palladino, 2021b). Stock buybacks occur when publicly traded companies repurchase their own shares on the open market with the intent of raising existing share prices, protected from liability for market manipulation of their stock price by Securities and Exchange Commission Rule 10b-18 (Lazonick, 2014;Palladino, 2020). Stock buybacks account for an increasing portion of corporate profits: they averaged 50 percent of corporate profits from 2008 to 2017, and when combined with dividends, averaged 100 percent over the same time period (author's analysis, using S&P Compustat).…”

“…Stock buybacks account for an increasing portion of corporate profits: they averaged 50 percent of corporate profits from 2008 to 2017, and when combined with dividends, averaged 100 percent over the same time period (author's analysis, using S&P Compustat). These rising payments to shareholders are a combined result of deregulation, personal incentives for corporate insiders to use stock buybacks to increase their compensation, and greater pressure from institutional investors (Palladino, 2020). However, they are often justified by the general notion that the United States is a "shareholder democracy," and everyone benefits from increasing share prices.…”

Share repurchases, coronaeconomy and stakeholders’ interests

“…The overview of publications allows us to conclude that most of the literature rarely aims at analyzing the impact of share repurchases on company's financial stakeholders. Still rare are works where the impact of stock buybacks is looked upon from the point of view of non-key, non-financial stakeholders and what could be done to reduce the ability of corporate insiders to use stock buybacks for personal gain [17].…”