Almost 20 years on from publishing my book, Accounting for Growth, I am exposing another loophole in the accountancy rules which is allowing companies to appear to have created value when they have not.
Today I am publishing a paper scrutinising the in vogue use of share buybacks - are they a friend or foe to shareholders? Do they create or destroy value? You might think the answer is obvious, but think again. The problem is when a company repurchases shares they disappear from the balance sheet and this can be used to distort measures of company performance. Simply by executing a share buyback rather than paying out dividends, companies can inflate their earnings per share (EPS) and are almost universally seen to have created value for shareholders when mostly they clearly have not....
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