ONE force behind the stock market’s recent strength has been the flood of money that corporate America has poured into share buyback programs. According to Standard & Poor’s, the companies in its flagship 500-stock index are on track to repurchase more than $435 billion worth of their shares this year. That’s significantly more than the $349 billion repurchased in 2005 and more than triple the $131 billion in shares that were bought in 2003.

Many investors applaud the buyback binge, considering these programs entirely beneficial. After all, buybacks support a company’s stock price and buoy per-share earnings by reducing the amount of stock outstanding.

But less obvious to investors are the downsides associated with buybacks. By artificially inflating a company’s earnings per share, repurchases can mask business slowdowns, for example. Companies can hurt their financial positions by putting scarce cash into repurchases. And when buybacks are used to offset multitudinous stock option grants to corporate executives, an even more pernicious outcome can occur: the purchases may actually destroy shareholder value by forcing companies to essentially buy stock in the open market at high prices to cover shares sold at lower prices to executives.

Furthermore, it may not surprise you to learn, buybacks can wind up bolstering top executives’ compensation. A new study by Jill Lehman, a managing director at the Center for Financial Research Analysis, and Paul Hodgson, a senior research associate at the Corporate Library, makes these and other risks clear.