Corporate executives using buybacks to cash out underperform the stock market, SEC commissioner claims

According to Securities and Exchange Commission head Robert Jackson, companies whose executives sell their stock “to cash out” following the announcement of stock buybacks underperform on the stock market in the long run, Yahoo Finance writes. The report shows that in such cases, companies note only a “short-term price pop”; after 90 days, however, such firms underperform by more than 8 per cent in comparison to other companies.

Jackson shared the finding in a letter to U.S. Senator Chris Van Hollen who last year questioned SEC Chairman regarding the pattern noticed. Van Hollen describes the findings as "very significant and very troubling."


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“If executives believe a buyback is the right thing to do, they should hold their stock over the long term,” Jackson wrote. “Instead, we found that many executives use buybacks to cash out.” The risk is that buybacks are driven by insiders' own interests instead of "the long-term needs of investors, employees, and communities.”

Jackson believes the legislation should be changed, saying prohibiting corporate executives from selling their stocks immediately after a buyout would be a good solution.