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News in Context: What are Stock Buybacks?
And how do they affect society, both positively and negatively?
Sometimes when there is a corporate scandal, the media, and corporate watchdogs note that the corporation recently engaged in a stock buyback. The implication is that the corporation chose greed over another factor that may have prevented the scandal, such as shoring up internal finances, investments in safety, labor, product improvement, or research and development.
What is a Stock Buyback?
A corporate stock buyback is when a company buys some of its outstanding stock. The buyback reduces the number of outstanding shares and ostensibly increases the value. Those who already own the stock should see the value of their holdings rise when this happens.
Stock buybacks increased after the 2017 Tax Cuts and Jobs Act (also known as the Trump Tax Cut). The Trump administration and its backers sold the TCJA to make the corporate tax rate more competitive and allow corporations to increase capital expenditures and investments (goods, materials, improvements, infrastructure, labor, etc.) and investments into research and development. Things that were supposed to “stimulate investments in long-term growth,” according to Forbes Magazine.
