Stock buybacks can appear to be a boon for a company and its investors, but some repurchases can present an unrealistically rosy view of a company’s financial health while lining the pockets of its top executives. At least that’s the view of a new study, as well as a recent article in CFO magazine.

Indeed, an examination of free cash flow before and after buybacks offers a view of a company’s true economic picture, according to a report released by the Center for Financial Research and Analysis (CFRA) and the Corporate Library. Their joint study reviewed S&P 500 companies (with the exception of real estate investment trusts, financial companies, and homebuilders) to determine which companies had negative free cash flow before or after buybacks.

Some share buybacks have been used to control escalating dilution of equity caused by handing out stock options and other share-based incentive pay. In such cases, repurchasing stock can benefit shareholders. However, often a share repurchase conceals business slowdowns and creates an improbable picture of a business’ health by artificially inflating earnings per share (EPS) growth, according to the report.

The cover-up can occur because a slowdown in revenue growth can lead to an increase in free cash flow, which can happen if less working capital is needed to fuel the business’ growth. When revenue growth steadies at a lower rate, a company could choose to boost EPS growth rates through share repurchases—but the increase isn’t derived from the underlying health of the business.

Indeed, 58 companies reported negative cash flow after stock repurchases in the two most recent financial years. Additionally, some businesses had negative cash flow after dividends but before they repurchased stock—a move that raised eyebrows about whether those repurchase plans are sustainable, the report noted. Beware of companies that issue new debt to finance share repurchases and use “per share” metrics to calculate executive compensation, warned Paul Hodgson, senior research associate at the Corporate Library, in a statement.

The study looked for firms that used debt to finance a repurchase and also compensated executives based partly on an EPS metrics. A total of 37 companies used the metric for at least one incentive compensation plan that was likely to be positively affected by a buyback plan. “We found that while the majority of share repurchase programs are on the up-and-up, some clearly raise questions as to who is benefiting and at whose expense,” noted Jill Lehman, managing director at CFRA in the report.

One revelation was that companies with buyback plans were more likely to pay bonuses—and at higher levels—to their chief executive officers. Over 88 percent of CEOs at such firms received an annual bonus in 2005, compared to 78 percent of their peers in the S&P 500. “At a minimum, governance is lacking,” stated Hodgson.