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    Stock repurchase plans: what are the reasons and effects?

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    1. Why do corporations buy back their own stock?

    2. What does it tell you about the corporation?

    3. What effect does the purchase have on the price of a company's stock?

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    Solution Preview

    1. Corporations aggressively buy back stock for several reasons, but primarily to support the market price of the company stock. Prices of common stock tend to increase when there is increased buying activity. It may not matter who is buying the stock, but simply the fact that there is market interest in a company. But then there are more technical reasons to buy back stock:

    a. Reducing the number of shares available can affect certain financial ratios which are used by lenders and investors. ...

    Solution Summary

    The cited solution includes a number of positive and negative reasons why a company might want to buy-back, or repurchase, their own stock in the marketplace. The reasons include markets perceptions as well as technical results.