Question
In March 2020, the U.S. government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to mitigate the impact of the pandemic on the
In March 2020, the U.S. government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to mitigate the impact of the pandemic on the economy. As part of the stimulus package, the Act appropriates $349 billion for the Paycheck Protection Program (PPP) meant to help small businesses keep their workforce on their payroll during the crisis.
The CARES Act imposes the following restrictions on stock buybacks and distributions of dividends to businesses qualifying for PPP loans:
"Until the date 12 months after the date the loan or loan guarantee is no longer outstanding, neither the eligible business nor any affiliate of the eligible business may purchase an equity security that is listed on a national securities exchange of the eligible business or any parent company of the eligible business, except to the extent required under a contractual obligation in effect as of the date of enactment of this Act." (CARES Act, 2020)
"Until the date 12 months after the date the loan or loan guarantee is no longer outstanding, the eligible business shall not pay dividends or make other capital distributions with respect to the common stock of the eligible business" (CARES Act, 2020)
(a)Briefly explain the reason for these restrictions.
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