Stock market volatility and corporate financial practices have been recurring themes in IELTS Writing Task 2, appearing roughly 2-3 times annually in recent years. Based on analysis of past exams, questions about economic stability and corporate governance are likely to continue featuring prominently. Let’s examine a recent task that exemplifies this topic.
Topic Analysis
Some economists argue that stock buybacks increase market volatility and should be more strictly regulated, while others believe they are an important tool for companies to manage their capital efficiently. Discuss both views and give your opinion.
This question requires candidates to:
- Examine different perspectives on stock buybacks
- Analyze their impact on market stability
- Present and justify a personal viewpoint
- Provide relevant examples and evidence
Stock market volatility analysis showing price fluctuations and trading volumes
Band 8.5 Sample Essay
Market participants and regulators have long debated the role of share repurchases in financial markets, with valid arguments on both sides regarding their impact on market stability. This essay will examine these competing perspectives before presenting my view that moderate regulation is necessary.
Proponents of stricter regulation argue that buybacks can artificially inflate stock prices and increase volatility. When companies spend billions on repurchasing their own shares, this reduces market liquidity and can lead to sharp price swings. For instance, during the 2008 financial crisis, firms that had conducted extensive buybacks faced severe liquidity shortages, exacerbating market instability. Additionally, critics contend that buybacks divert capital from productive investments in research, equipment, and workforce development.
However, defenders of buybacks maintain that they are an efficient capital allocation tool that benefits shareholders and the broader economy. When companies have excess cash beyond their investment needs, returning it to shareholders through buybacks allows that capital to be reinvested in more productive ventures. For example, technology companies like Apple have used buybacks to return value to shareholders while maintaining robust research and development spending. Buybacks can also help stabilize stock prices during market downturns by providing consistent demand.
In my view, while buybacks serve legitimate purposes, some additional oversight is warranted to prevent abuse. Regulations should focus on ensuring companies maintain adequate capital reserves and continue investing in long-term growth rather than imposing outright restrictions. This balanced approach would preserve buybacks’ benefits while mitigating their potential to amplify market volatility.
Corporate executives analyzing financial statements and market data
Band 6.5 Sample Essay
Stock buybacks are when companies buy their own shares from the stock market. Some people think this is dangerous and needs more rules, but others say it helps companies use their money well. I will discuss both sides and give my opinion.
First, many experts worry about buybacks making the stock market unstable. When companies spend lots of money buying their own shares, it can make share prices go up and down quickly. Also, companies might use money for buybacks instead of investing in new machines or hiring workers. This could be bad for the economy in the long term.
On the other hand, buybacks can be good for companies and investors. If a company has extra money and can’t find good investments, giving the money back to shareholders through buybacks makes sense. The shareholders can then invest this money in other companies that need it more. Also, when stock prices are falling, buybacks help support the price.
In my opinion, we should have some new rules about buybacks but not ban them completely. Companies should prove they have enough money saved and are still investing in their business before doing buybacks. This would help prevent problems while still letting companies use buybacks when appropriate.
Scoring Analysis
Band 8.5 Essay Features:
- Sophisticated vocabulary and complex structures
- Clear organization with cohesive paragraphs
- Well-developed arguments with specific examples
- Balanced analysis with nuanced conclusion
- Minimal grammatical errors
Band 6.5 Essay Features:
- Simpler vocabulary and sentence structures
- Basic organization with clear paragraphs
- Limited development of ideas
- Some repetition and informal language
- Occasional grammatical errors
Key Vocabulary
- Market volatility (n) /ˌvɒləˈtɪlɪti/ – rapid or unpredictable changes in financial markets
- Capital allocation (n) /ˈkæpɪtl ˌæləˈkeɪʃn/ – distribution of financial resources
- Share repurchase (n) /ʃeə ˈriːpɜːtʃəs/ – when a company buys back its own stock
- Liquidity (n) /lɪˈkwɪdɪti/ – availability of assets that can be easily converted to cash
- Regulatory oversight (n) /ˌreɡjʊˈleɪtəri ˈəʊvəsaɪt/ – supervision by governing bodies
Conclusion
This topic exemplifies the type of economic policy questions that frequently appear in IELTS Writing Task 2. To prepare, practice writing about similar topics such as:
- Corporate governance and transparency
- Financial market regulation
- Economic stability measures
- Investment strategies and risks
Share your practice essays in the comments for feedback and improvement suggestions.
