Share Buyback: A Blank Check for Management?

Abstract

This paper introduces the increasing use of share buybacks in western countries with different motivations especially on the part of top management. After exploring the impact of share buybacks on earnings per share and cash, the paper critically examines if it is really a payout in order to return money to shareholders as claimed by some companies. In many cases, there are some traces of management’s hidden motivation to use share buyback to their interest rather than the interest of minority shareholders, because most of the decisions are flexible giving choice to management. Finally, the paper suggests shareholders and investors to be careful in making share buyback decisions, and recommends regulatory authorities to be alert and protect the shareholders by tightening their legislation and regulations.