The Wall Street research agency has come up with a shocking observation. As per the researchers of the company, if Congress prevents companies from buying back shares, it might come as a backfire. The companies may start considering themselves as private via leveraged buyouts.
Brian Reynolds, who is an asset class strategist at the Canaccord Genuity informed that going private is a form of 100% buy-back only. He also stated that company owners are always excited to increase stock price. If they are stopped from buying back shares, this will result in reduced profits. Ultimately, this will encourage companies to opt for privatization. Reynolds also informed that stringent rules have many times failed the purpose. Companies have often found out ways to shun the laws. This has in turn encouraged shadow banking.
This new rule is in respect of the post- financial crisis era in America. There has been large amount of repurchases by corporates of The United States. Companies have started using cheap debt tools to boost their stock prices. In this way they have also reduced the outstanding on the shares. Proper evidence has been showcased by the Democrats to prove the buy backs issue. They have also criticized the overhaul of GOP corporate tax.
The latest politician to support limitations on buy- backs is Senate Marco. He is also the first Republican to support the cause. The plan is to increase taxation on the capital gains. In this way the companies will avoid share repurchases. The initiative has been supported by Senate Chuck Schumer and Vermont Senate. Bernie Sanders has informed that this new legislation will compel companies to spend more on employee welfare via hikes and benefits. As they will have more amount in hand as a result of not being able to opt for buy-backs.