Share repurchase

PrepNuggets

Share repurchases are an alternative to cash dividend payments. A share repurchase is a transaction in which a company uses cash to buy back its own shares.

As there are now fewer number of outstanding shares, the earnings attributable to each share is increased, thus increasing the value of each share.  This means that shareholder wealth is increased, even though the shareholder does not receive cash.

A share repurchase is viewed as equivalent to the payment of cash dividends of equal value in terms of the effect on shareholders’ wealth, all other things being equal. 

Compare: Stock dividend

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