Look at the following report, p. 3 During the financial crisis, the stock market bottomed in March 2009.

https://www.yardeni.com/pub/buybackdiv.pdf

The problem with this argument, though, is that companies consistently buy back stock when prices are high but are unable or unwilling to do so when their stock price goes down in bad times.

I don’t get why that’s a “problem”.

That’s a rhetorical question, to which a rhetorical response might be – why wouldn’t a company buy back its own stock when available at a big discount?

Instead of asking a rhetorical question, why not look at what actually happens? Do companies tend only to buy back their own stock when prices are high, or when prices are low? I don’t have access to such data. Do you?

The problem with this argument, though, is that companies consistently buy back stock when prices are high but are unable or unwilling to do so when their stock price goes down in bad times. Anyone here think United Airlines will be jumping in to buy back stock at its deeply depressed price, regardless of whatever language is in the laws passed this year?

Buybacks are favored by management, partly because it’s easier to suspend buybacks with no publicity whereas cutting or ending dividends in bad times are done in public. In addition, dividends reduce the value of an individual share by the amount they are paid, while stock buybacks do not. In the theoretical world of libertarianism that Mr. Frank lives in, the market for executive compensation is so efficient that the price for stock options and restricted stock options that executives receive automatically adjust to how a corporation chooses to return cash to its owners.

Fortunately for those of us who appreciate the work he does in fighting class action settlements that benefit the law firms who file cases and not the supposed beneficiaries, he does not apply the logic of perfectly efficient markets to that arena.