Question

(2) Do companies have an obligation to use the money spent on share buybacks to grow the company, pay employees more, offer more benefits to employees, etc.?

Answer 1

Companies dont have any obligations to use the money to grow the company, pay employees more etc instead of doing buybacks. The performance of the company is majorly dependent on the vision of the owners and the management and if the company is creating huge cash inflows and they lack proper vision on what to do with the money, they spend it on buy back and paying dividend in an expectation that investors will be satisfied.

But from a longer perspective always investments for the growth of the company and employee satisfactions are preferred which in turn benefit the valuations of a company. Ultimately deciding what to do with the money a company generates will depend on the management and boards decision(major shareholders) and they are not obliged to do any specific task with it.