The Washington Post
Buybacks benefit companies
I am not an economist, but neither is George F. Will.
Citing an actual economist, Mr. Will wrote in his March 5 op-ed, “A nonsensical progressive charge against buybacks,” that corporate stock buybacks benefit society and the economy as a whole. Something about dollars going on to make baby dollars elsewhere. Okay. Assuming this is true, he accepted without question that this general benefit somehow causes the particular company’s stock to rise.
Huh? Buybacks correlate to increases in the purchaser’s share price for two reasons. The first, of course, is supply and demand. Taking shares off the market increases the value of the remaining shares.
The second — and the one far more likely to explain any persistent increase in value following a buyback — is that buybacks are the ultimate insider trading play. A company buys its shares back when it believes — based on information that, it is fair to say, almost certainly isn’t all publicly known — its shares are undervalued. This is the main reason stock