Share repurchase

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  S&P 500 Stock buyback
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Share repurchase, also known as share buyback or stock buyback, is the re-acquisition by a company of its own shares.[1] It represents an alternate and more flexible way (relative to dividends) of returning money to shareholders.[2] When used in coordination with increased corporate leverage, buybacks can increase share prices.[3]

In most countries, a corporation can repurchase its own stock by distributing cash to existing shareholders in exchange for a fraction of the company's outstanding equity; that is, cash is exchanged for a reduction in the number of shares outstanding. The company either retires the repurchased shares or keeps them as treasury stock, available for re-issuance.

Under U.S. corporate law, there are six primary methods of stock repurchase: open market, private negotiations, repurchase "put" rights, two variants of self-tender repurchase (a fixed price tender offer and a Dutch auction), and accelerate repurchases.[4] More than 95% of the buyback programs worldwide are through an open-market method,[2] whereby the company announces the buyback program and then repurchases shares in the open market (stock exchange). In the late 20th and the early 21st century, there was a sharp rise in the volume of share repurchases in the United States: US$5 billion in 1980 rose to US$349 billion in 2005. Large share repurchases started later in Europe than in the United States, but are nowadays a common practice around the world.[5]

U.S. Securities and Exchange Commission (SEC) rule 10b-18 sets requirements for stock repurchase in the United States.[6]

  1. ^ "Share Repurchase Definition". Investopedia.
  2. ^ a b Fernandes, Nuno (2014). Finance for executives: a practical guide for managers. NPV Publishing. ISBN 978-989-98854-0-0. OCLC 878598064.
  3. ^ "How share buybacks and cheap debt are used to boost stock prices". Banking Observer. Retrieved 4 Sep 2022.
  4. ^ "Accelerated Share Repurchase (ASR)".
  5. ^ For evidence of the increased use of share repurchases, see Bagwell, Laurie Simon and John Shoven, "Cash Distributions to Shareholders" 1989, Journal of Economic Perspectives, Vol. 3 No. 3, Summer, 129–140.
  6. ^ "Rule 10b-18". Investopedia. Retrieved 10 Apr 2014.

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