> Taking on debt to finance buybacks, however, is bad management, given that no revenue-generating investments are made that can allow the company to pay off the debt.
Not necessarily. Just as debt can be paid back by issuing more shares to raise capital, debt can be issued to raise money to buy back shares. It depends on whether management thinks the current valuation is too hot or too cold.
My fear is that these debt fueled buybacks actually create perverse incentives among options holders who have a lot to gain from short term gains in share prices.
Reckless increasing your leverage is a great way to destroy equity value due not only to increased interest expense but also from the cost of financial distress which investors price into their models.
Which is not to say companies don't do that – there's definitely a wedge between what's best for shareholders and what's best for management¹, but there's no way around it other than having shareholders run the company themselves (which comes with its own set of issues)
But that's not true. The 43% number is just companies that capitalize R&D on the balance sheet. All companies must disclose buybacks, but only some capitalize R&D, (even though they all spend on R&D), so of course it skews the data.
That's just a poor comparison on HBRs part.