Dangers of Buy-Back of Shares

Despite the various merits of Buy Back of Shares, there are serious apprehensions about this facility. It is feared that the buy back may be misused by the corporate entities at the cost of innocent investors. The inherent dangers may be listed as:
(i) It will provide an ample opportunity for inside trading. The promoters, before the buy back, may understate the earnings by manipulating accounting policies, say in respect of depreciation, valuation of inventories etc., and highlight other unfavorable factors affecting the earnings. This would lead to a fall in the quoted prices of shares and promoter would buy them at low quotations. In this manner, the insiders would make extra money when the company buys back these shares at higher price.
(ii) Buy back may lead to artificial manipulations of stock prices.
(iii) The position of the minority shareholders is weakened as buy back enables the management to increase their control over the company.