Question: Compensation of senior management is often tied to earnings per
Compensation of senior management is often tied to earnings per share or return on equity. Treasury stock purchases have a favorable impact on both these measures because treasury stock reduces the denominator in both calculations. In the recent buyback boom, many companies borrowed money to purchase treasury shares. In some cases, the motivation for the borrowing and repurchase of shares was the desire of executives to secure their year-end cash bonuses. Did these executives act ethically? Were their actions in the best interests of stockholders? Why or why not? How might such behavior be avoided in the future?
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