Peeling the Onion on Stock Buybacks
Stock repurchases are often touted by management as a positive event, helping to counteract the undervaluing of a company’s stock. However, when stock buybacks coincide with insider selling, red flags should be raised.
Audit Integrity conducted an analysis of numerous companies to see if heightened levels of insider selling occurred during the same four quarters in which a repurchase plan was enacted. This was found to be true of 30 companies listed in Audit Integrity’s report “Share Repurchases, Revisited”.
High levels of share buybacks and insider selling are two key factors often found to be indicative of fraud, shareholder litigation or other negative events. Of course, not every large-scale sale of stock by insiders should be viewed critically. Yet, considering the large stock options in today’s executive compensation packages, questions about corporate integrity are warranted.
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