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Consider the bold:

Baker also has a 28 January 2021 piece that responds to the notions that share buybacks (1) “allow companies to inflate share prices”, (2) allow “top management to manipulate share prices” in order to maximize the value of stock options, (3) divert money away from long-term investment, and (4) allow for tax avoidance.

Regarding (4), Baker says that there is a gift to rich people, since share buybacks—as opposed to dividends—“do allow shareholders to avoid paying taxes as long as they hold their stock”. But Baker says that “shares typically turn over very quickly”, so people shouldn’t exaggerate how big this gift is.

Regarding (3), Baker questions the logic of thinking that “companies would invest more if they paid out money to shareholders as dividends” instead of paying out money to shareholders through share buybacks. Baker says that it’s almost a matter of definition that companies will invest less if they pay out more money to shareholders through dividends and share buybacks, but Baker is “strongly inclined to believe” that the reason that companies are paying out money to shareholders is that companies “don’t see good investment opportunities”—Baker doesn’t think that companies see good investment opportunities and then choose to pay money out to shareholders instead.

Regarding (1), Baker says that share buybacks aren’t problematic if the PE is “exactly the same after the buyback as before”. And that buybacks might actually increase the PE, which would mean that “buybacks are effectively a tool used by top management to gain at the expense of future shareholders, with current shareholders being indifferent”.

Regarding (2), Baker says that it strikes him as “a very plausible story”. The implication is that top management is taking money that the shareholders—or the board of directors—didn’t want them to have, which means that “the shareholders should be allies in efforts to rein in CEO pay”. And the other implication is that “the claim that the company is being run to maximize returns to shareholders is not true”.

Baker says that “reining in CEO pay is very important because of the distorting effect it has on pay structures throughout the economy”—a “world where CEOs get paid $2M (like in the good old days) is very different than today’s world where they get paid $20M”.

This “leaves the moral of the evil buyback story as being that we need to crack down on CEOs ripping off their companies and bring their pay down to earth”.

But now consider the bold:

Bob went to the store.

Bob bought some flour.

This was interesting to the man.

So in both of these two bolded instances, there's no actual rule about what "This" refers back to, right? It's ambiguous; it could be referring back to just the preceding paragraph's final sentence or it could be referring back to the preceding paragraph as a whole, or maybe there's even a third option. Could it even refer to back to something that precedes the preceding paragraph?

Last edited by Andrew Van Wagner
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