Prevent listed companies from turning buybacks into a new "harvesting tool"

Stock buybacks by listed companies have always been regarded as a positive signal and are welcomed by the market, especially for cancellation buybacks, which are beneficial for enhancing the investment value of listed company stocks. This has been strongly advocated by management and has become a significant driver of stock price increases.

However, after entering 2026, stock buybacks by listed companies have been overshadowed by the reduction of repurchased shares by certain companies. After the A-shares surpassed 4000 points, many listed companies began to reduce their previously repurchased shares. As a result, stock buybacks have turned into share reductions, which not only diluted the positive effects of buybacks but also directly constituted a significant negative factor for the market, bringing considerable adverse effects.

Of course, the reduction of repurchased shares by listed companies is in accordance with current policy regulations. However, the correctness of policies and regulations also needs to be tested by practice and improved upon in practice. Regarding the reduction of repurchased shares by listed companies, the impact on the market is negative, and this negative impact can be quite severe.

First, the process from stock buybacks to share reductions has, in effect, transformed stock buybacks into a form of “stock speculation” by listed companies. Although stock buybacks are presented under the banner of “maintaining value and shareholder rights,” the act of reducing shares clearly disregards that goal. This behavior of both buying and selling, even engaging in low buying and high selling, is fundamentally no different from how investors speculate on stocks; it’s just that the buying and selling cycle is longer than that of ordinary investors.

Secondly, the process of transitioning from stock buybacks to share reductions raises suspicions of listed companies using buybacks as a new tool to harvest investors. From the current situation of some companies reducing repurchased shares, it is basically a case of low buying and high selling. For instance, one company had an average buyback cost of 1.44 yuan and a reduction average of 6.01 yuan, yielding a profit margin exceeding 300%. This operation clearly profited at the expense of investors. The profits made by the company are losses incurred by investors. Thus, stock buybacks have evolved into a competition for profits with investors.

Moreover, the operations from stock buybacks to share reductions also violate the original intention of stock buybacks. The purpose of stock buybacks is to stabilize the company’s stock price and boost investor confidence. However, the reduction of shares by listed companies is clearly detrimental to stock price stability and can even undermine investor confidence. The significance of stock buybacks has been entirely lost due to the reduction of shares by listed companies.

For this reason, strict regulation of the behavior of listed companies reducing repurchased shares must be enforced. Stock buybacks cannot become a new tool for harvesting investors’ interests, and the “crooked monks” in the A-share market cannot misinterpret the true meaning of stock buybacks.

So, how can we strictly regulate the behavior of listed companies reducing repurchased shares? This must start from the source. For stock buybacks necessary to maintain company value and shareholder rights, cancellation buybacks should, in principle, be prioritized. All repurchased shares should be used for cancellation.

Secondly, for some growing listed companies with a small capital structure, which may also need to maintain company value and shareholder rights during market downturns, shares repurchased by these companies can be exempt from cancellation. However, these repurchased shares can be distributed to public investors after the buyback period ends, in accordance with profit distribution, based on the proportion of shares held by public investors. This is also a way for listed companies to reward investors.

Additionally, for companies facing operational difficulties, allowing them to hold repurchased shares as treasury stock to be resold to the market at an appropriate time is permissible. However, the lock-up period for the repurchased shares must not be less than 5 years, and during this lock-up period, the company must not reduce its treasury shares. Treasury shares can be valued at half the buyback price or market price (whichever is lower) for pledge loans to alleviate the company’s cash flow difficulties.

Author’s statement: Personal opinion, for reference only.