Testimony before the House Financial Services Committee; Hearing on 'Examining Corporate Priorities: The Impact of Stock Buybacks on Workers, Communities, and Investors'

22 Pages Posted: 10 Nov 2019

See all articles by Lenore Palladino

Lenore Palladino

University of Massachusetts at Amherst - College of Social and Behavioral Sciences - Department of Economics; Franklin & Eleanor Roosevelt Institute

Date Written: October 17, 2019

Abstract

In this testimony I discuss the causes and consequences of the rise of stock buybacks. Stock buybacks may sound like a technical matter of corporate finance: Why should it matter whether or not corporations repurchase their own stock? When a company executes a stock buyback, they raise the price of that company’s shares for a period of time, but the funds spent on buybacks are then unavailable to be spent on the types of corporate activities that could make the company more productive over the long term: investments in future productivity and in the workforce. Stock buybacks are one of the drivers of our imbalanced economy, in which corporate profits and shareholder payments continue to grow while wages for typical workers stay flat.

Stock buybacks are virtually unregulated, even though Congress has recognized their potential for market manipulation. Importantly, there are currently no meaningful limits to stop executives from using corporate money on stock buybacks to raise share prices for their own short-term gain. Executives are not required to disclose that they have conducted a buyback until the next quarter’s filing; meanwhile, there are no substantive limits to stop them from selling their own personal shares in the same quarter as they are conducting buybacks.

Suggested Citation

Palladino, Lenore, Testimony before the House Financial Services Committee; Hearing on 'Examining Corporate Priorities: The Impact of Stock Buybacks on Workers, Communities, and Investors' (October 17, 2019). Available at SSRN: https://ssrn.com/abstract=3472036 or http://dx.doi.org/10.2139/ssrn.3472036

Lenore Palladino (Contact Author)

University of Massachusetts at Amherst - College of Social and Behavioral Sciences - Department of Economics ( email )

Amherst, MA 01003
United States

Franklin & Eleanor Roosevelt Institute ( email )

4079 Albany Post Rd.
Hyde Park, NY 12538
United States

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