Mark Cuban Once Said Share Buybacks Reward The Wrong People: 'Why Should A Company Reward Shareholder Who Want To Sell'

Entrepreneur and investor Mark Cuban has never been shy about sharing his opinions on business and investment topics.

In a 2022 interview, Cuban shared why he's against share buybacks.

What Happened: Many public companies offer stock dividends and share buybacks to reward shareholders. Each has its own tax advantages or disadvantages and can increase the stock price.

Cuban shared his thoughts on share buybacks calling into CNBC during a segment discussing how the Inflation Reduction Act would add a 1% tax on share buybacks.

"No one is a fan of more taxes, but of all the taxes you're trying to create, I think a tax on buybacks is a good idea," Cuban said.

Cuban said he wouldn't compare it to carried tax, as it wasn't the same thing and he's not an expert there.

The entrepreneur said companies need to make decisions between share buybacks and dividends to reward shareholders.

"The old notion that share buybacks were more tax advantage for shareholders, this is just not the case any longer," he said.

Cuban also explained the difference, in his opinion, of who benefits from share buybacks.

"For share buybacks you reward the people who are leaving and selling your stock instead of rewarding the people who are keeping your stock."

You may not be a billionaire like Mark Cuban, but you can uncover hidden gems in the stock market using our proprietary data and pattern recognition — check out five stocks flying under the radar that deserve your attention.

Why It's Important: The conversation between Sorkin and Cuban came after a recent thread from the entrepreneur on Twitter Inc, now known as X, where Cuban shared that share buybacks are not good for most employees.

"They rarely buy those shares directly from employees. And employees can't time their sales to the announcement," Cuban tweeted.

Cuban said the employees own the pricing risk when they are able to or need to sell.

Cuban suggested employers buy back the shares from the employees to eliminate their pricing risk.

"Why should a company reward shareholders who want to sell all, or reduce their holdings? You talk about misaligned incentives with the board/management and stakeholders."

Buying back stock lowers the shares outstanding, which can increase earnings per share and reward shareholders indirectly.

Read Next:

• Warren Buffett Investment Success: 3 Simple Rules To Copy Oracle Of Omaha

This article was previously published by Benzinga and has been updated.

Photo: Shutterstock