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Share buybacks: Fundamentally wrong or good business?
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Is it right that companies invest in share buybacks? The CEO of Legal and General, one of the UK’s biggest institutional investors, thinks it’s 'fundamentally wrong'. Nigel Wilson says firms should instead be focusing on the ‘real economy’ like research and infrastructure. But financial analyst Louise Cooper thinks he’s misguided.
She says the role of the company is to invest money where there is profit. If the return on investment doesn’t exceed the cost of capital she says it should not be done. Cooper also believes there are good reasons why share buybacks look a good bet.
The financial analyst does though agree with Nigel Wilson that it’s wrong for chief executives to be given big bonuses for reaching an earnings per share target that’s helped by buying shares back.
Over the last few years, Corporate UK hasn’t been investing as much in the ‘real economy’. But Louise Cooper points out that data shows there’s been a marked increase in investment in this area. She says with a return to confidence there will be a ‘Stampede to Spend’ by companies in the UK.
She says the role of the company is to invest money where there is profit. If the return on investment doesn’t exceed the cost of capital she says it should not be done. Cooper also believes there are good reasons why share buybacks look a good bet.
The financial analyst does though agree with Nigel Wilson that it’s wrong for chief executives to be given big bonuses for reaching an earnings per share target that’s helped by buying shares back.
Over the last few years, Corporate UK hasn’t been investing as much in the ‘real economy’. But Louise Cooper points out that data shows there’s been a marked increase in investment in this area. She says with a return to confidence there will be a ‘Stampede to Spend’ by companies in the UK.