Share buybacks in listed companies

Abstract

Put simply, share buyback refers to the buying back by a company of its own shares from an investor or shareholder. In the US, a share buyback is commonly referred to as a stock repurchase. Hewitt (1990) notes that the terms "buy back" and "repurchase" are colloquially used to refer to the situation where a company purchases its own shares. He points out that, strictly speaking, this terminology is misconceived since a company never previously owned or had the share as an asset, so technically it cannot buy back. Announcements by public companies that they are going to buy back their shares have been hailed as being "... bold market-moving statements that help boost the price of a company's remaining shares and are often considered a signal that management is serious about delivering shareholder value." Buyback announcements have a powerful headline content and are appealing because investors pay attention. Buybacks have been described as "one of the cleverest corporate finance and investment strategies around'.