What are the implications of a corporate stock repurchase or share buyback program?
Ignoring taxes, a share repurchase has exactly the same effect on the company and the shareholders' wealth as a cash dividend. In either case, the company is disbursing cash to its shareholders; in the former, in exchange for shares which shareholders happen to be selling on the market at the time; in the latter, equally to all shareholders. For those shareholders who do not happen to be selling their shares, a share repurchase by a company is equivalent to a shareholder's reinvestment of a cash dividend in additional shares of the same company.  The only difference is the total number of shares left outstanding.  Your shares after a share buyback represent ownership of a greater fraction of the company, since in effect the company is buying out other shareholders on your behalf. Theoretically, a share buyback leaves the price of the stock unchanged, whereas a cash dividend tends to reduce the price of the stock by exactly the amount of the dividend, (notwithstanding underlying earnings.)  This is because a share buyback concentrates your ownership in the company, but at the same time, the company as a whole is devalued by the exact amount of cash disbursed to buy back shares. Taxwise, a share buyback generally allows you to treat your share of the company's profits as capital gains---and quite possibly defer taxes on it as long as you own the stock.  You usually have to pay taxes on dividends at the time they are paid.  However, dividends are sometimes seen as instilling discipline in management, because it's a very public and obvious sign of distress for a company to cut its dividend, whereas a share repurchase plan can often be quietly withdrawn without drawing that much attention. A third alternative to a dividend or a share repurchase is for the company to find profitable projects to reinvest its earnings in, and attempt to grow the company as a whole (in the hopes of even greater earnings in the future) rather than distribute current earnings back to shareholders.  (A company may alse use its earnings to pay down or repurchase debt, as well.) As to your second question, the SEC has certain rules that regulate the timing and price of share repurchases on the open market. A board authorizes the repurchase of shares because they feel the stock in undervalued. The hope is that the stocks will rise either directly by their repurchase, or in the near term due to the realization that the company is in better shape then the market thought. Eventually those shares will be resold back into the market thus bring in more cash at a later date.  They will set limits on them maximum they will pay, they will also spread the repurchases out over a time period so they don't overwhelm the market. The future shares will be fewer in number, yet have claim to less cash in the bank. All in all, there's little reason the shares would rise in value.  Say there are 1M shares, trading at $10. Market cap is $10M of course. Now, there happens to be $2M cash in the bank so each share had about $2 cash. By taking the $2M and buying 200K shares, 800K shares remain, but why would you think they'd be valued at $12.50? The same $10 value per share is now an $8M market cap as $2M has been disbursed, no less so than if it were given out in a dividend. the implications are that the company's earnings per share may seem greater, (after the company buys them there will be less shares outstanding), giving wall street the impression that there is more growth potential than there really is. its an accounting gimmick that can work for a few quarters while the company evaluates how else to impress wall street A stock buy back reduces the number of stocks available on the open market.  Since stocks are literally a share in ownership a buy back of the stock then when the company repurchases it has the effect of increasing the percent of ownership of the company of each stock. Zynga has a Market Cap of ~1810M so a 200M buy back will increase the ownership value of each stock by ~12%.  This has had the effect of an immediate stock price bump of around 12% which is to be expected as the value becomes the expected post buyback value. However long term gains will require Zynga to turn around their business.  This bump will only be sustainable if they can.  If their business continues to decline then its stock price will continue to slide.  There are some who would rather see Zynga invest that 200m in getting a new product to market to bring revenues up rather than spending precious capital on a plan to temporarily bump a stock that is headed towards the floor.  If on the other hand the revenue is poised to recover and the company has the excess capitol buying back stock low is a great way to get the most back for your shareholders bucks. Can they repurchase at any price and any time? They can write a buy order for any price at any time in the future, though they have some restrictions from the SEC mostly involving disclosures.  But it is up to the sellers to choose to sell at that price.  If they execute the buy back at a rate comparable to market rate then they are more likely to get takers than if they attempt to buy it back at a significant reduction from market price.  So since today(10-25-2012) the it is selling for ~2.30  A buy order for 2.30 is going to get more action than one at 2.00.  Investors will often look at the companies buy back offer for a company in decline(like Zynga has been) as the true value of the company.  If so then a lowball buyback offer could add downward pressure on the stock price.
In the US, it is perfectly legal to execute what you've described. However, since you seem to be bullish on the stock, why sell? How do you KNOW the price will continue downwards? Aside from the philosophical reasoning, there can be significant downside to selling shares when you're expecting to repurchase them in the near future, i.e. you will lose your cost basis date which determines whether or not your trade is short-term (less than 1 year) or long-term. This cost basis term will begin anew once you repurchase the shares. IF you are trying to tax harvest and match against some short-term gains, tax loss harvesting prior to long-term treatment may be suitable. Otherwise, reexamine your reasoning and reconsider the sale at all, since you are bullish. Remember: if you could pick where stock prices are headed in the short term with any degree of certainty you are literally one of a kind on this planet ;-).  In addition, do remember that in a tax deferred account (e.g. IRA) the term of your trade is typically meaningless but your philosophical reasoning for selling should still be examined. Buybacks do not increase the company's value. Cash is traded for outstanding shares. This is similar to a dividend, but instead of cash, investors receive a rising share-price. Whether an investor prefers a cash dividend or capital gains is less important than the outcome that their investment is gaining value for them. They have been changing over Immelts tenor. Didn't know he was stepping down though.       Share buybacks can be for a variety of reasons. They feel stock price is undervalued, they want to support their current shareholders, debt is cheap so they can change their wacc, they prefer to return capital in a way that does not increase expected dividends in the future (something about dividends being sticky, and the a cut in dividends Make it look like company is doing bad), etc. "Repurchase agreements are a way of financing a security position. You have a collateralized loan where you give your security in exchange for cash. Let's say you have a 10 year Treasury note paying 3.5% while the 1-week repurchase rate is 0.5%. You loan the security to someone with a promise to repurchase it from them some time in the future. You  collect the 3.5% coupon and you pay the 0.5% interest. Clearly it makes no sense for someone to collect interest on money and also collect coupon payments. And for the counter-party it makes no sense to be not getting coupon payments and also to be paying interest. This how one website explains the process: During the transaction, any coupon payments that come due belong to   the legal owner, the ""borrower."" However, when this happens, a cash   amount equal to the coupon is paid to the original owner, this is   called ""manufactured payment."" In order to avoid the tax payment on   the coupon, some institutions will repo the security to a tax exempt   entity and receive the manufactured payment and avoid the tax (""coupon   washing"") I find this unequivocal description to be the clearest During the life of the transaction the market risk and the credit risk   of the collateral remain with the seller. (Because he has agreed to   repurchase the asset for an agreed sum of money at maturity). Provided   the trade is correctly documented if the collateral has a coupon   payment during the life of the repo the buyer is obliged to pay this   to the seller." "Private companies often ""make the market"" for their own stock. So they may offer to buy back so many shares a year, give staff the option to sell stock back after so many years, etc.  But private companies can have their own restrictions. They can, for instance, forbid secondary trading or explicitly limit voting stock to family members.  Ostensibly, someone could sell a big chunk of a company for whatever price they wanted (unless it was prohibited).  For tax purposes, IRS will come after you if you get a bunch of value for less than you paid for.  It is not an unheard of way to transfer wealth, but a dollar? Probably just gift it. But I'm not a tax attorney...   But is absolutely not the same kind of price transparency, or price movement, that you see in public stock, you are correct. Larger private companies may have secondary markets that are still less transparent." A Breakdown of Stock Buy Backs has this bottom line on it: Are share buybacks good or bad? As is so often the case in finance, the question may not have a definitive answer. If a stock is undervalued and a buyback truly represents the best possible investment for a company, the buyback - and its effects - can be viewed as a positive sign for shareholders. Watch out, however, if a company is merely using buybacks to prop up ratios, provide short-term relief to an ailing stock price or to get out from under excessive dilution. Read more: http://www.investopedia.com/articles/02/041702.asp#ixzz3ZHdOf2dJ What is the reason that a company like AAPL is buying back its own   shares?  Offsetting dilution would be my main thought here as many employees may exercise options putting more stock out there that the company buys back stock to balance things. Does it have too much cash and it doesn't know what to do with it?  No as it could do dividends if it wanted to give it back to investors. So it is returning the cash back to investors? Not quite. While some investors may get cash from Apple, I'd suspect most shareholders aren't likely to see cash unless they are selling their shares so I wouldn't say yes to this without qualification. At the same time, the treasury shares Apple has can be used to give options to employees or be used in acquisitions for a couple of other purposes. "After the initial public offering, the company can raise money by selling more stock (equity financing) or selling debt (e.g. borrowing money).  If a company's stock price is high, they can raise money with equity financing on more favorable terms.  When companies raise money with equity financing, they create new shares and dilute the existing shareholders, so the number of shares outstanding is not fixed. Companies can also return money to shareholders by buying their own equity, and this is called a share repurchase.  It's best for companies to repurchase their shared when their stock price is low, but ""American companies have a terrible track record of buying their own shares high and selling them low."" The management of a company typically likes a rising stock price, so their stock options are more valuable and they can justify bigger pay packages." You might be right about that, but your previous posts don't say that.  In just the last one you said:  &gt;Because buyback decreases shares outstanding it **also decreases the company's total future dividend payouts as well**  This is indicating that you believe there is a difference somehow, no? "A retraction privilege is a right extended to the shareholder that allows such shareholder to demand repayment of the principal. If one exercises the right to retract, the shares are exchanged for principal plus a sweetener and/or less a penalty. The requirement to provided matched shares means that the shares purchased plus those matched by the employer only have retraction privileges.  Unmatched shares do not. To be certain, it's always best to read all contracts, but in essence, this is a way to ""cash out"" of the preferred shares. The consent to resale is a power granted to the holder over the corporation to resell the retracted shares.  If it's granted, the corporation can sell to another party; if not, the corporation will have to retire the shares and issue new shares to maintain the previous number of shares outstanding.  It is likely that withholding consent has a penalty, and/or granting consent has a sweetener." "I think you have to go back to [this HBR article](https://hbr.org/2014/09/profits-without-prosperity) to really understand:  TLDR: Buybacks boost CEO pay and hurt the long term value of companies. But I'm not convinced that they're ""the root of inequality""   ""Consider the 449 companies in the S&amp;P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees.""  ""Why are such massive resources being devoted to stock repurchases? Corporate executives give several reasons, which I will discuss later. But none of them has close to the explanatory power of this simple truth: Stock-based instruments make up the majority of their pay, and in the short term buybacks drive up stock prices. ""  ""Trillions of dollars that could have been spent on innovation and job creation in the U.S. economy over the past three decades have instead been used to buy back shares for what is effectively stock-price manipulation.""  "" Most are now done on the open market, and my research shows that they often come at the expense of investment in productive capabilities and, consequently, aren’t great for long-term shareholders.""  ""Research by the Academic-Industry Research Network, a nonprofit I cofounded and lead, shows that companies that do buybacks never resell the shares at higher prices.""  ""Many academics have warned that if U.S. companies don’t start investing much more in research and manufacturing capabilities, they cannot expect to remain competitive in a range of advanced technology industries. ""  Specific examples:  ""Pharmaceutical drugs.  In response to complaints that U.S. drug prices are at least twice those in any other country, Pfizer and other U.S. pharmaceutical companies have argued that the profits from these high prices—enabled by a generous intellectual-property regime and lax price regulation—permit more R&amp;D to be done in the United States than elsewhere. Yet from 2003 through 2012, Pfizer funneled an amount equal to 71% of its profits into buybacks, and an amount equal to 75% of its profits into dividends. In other words, it spent more on buybacks and dividends than it earned and tapped its capital reserves to help fund them. The reality is, Americans pay high drug prices so that major pharmaceutical companies can boost their stock prices and pad executive pay.""  ""Nanotechnology.  Intel executives have long lobbied the U.S. government to increase spending on nanotechnology research. In 2005, Intel’s then-CEO, Craig R. Barrett, argued that “it will take a massive, coordinated U.S. research effort involving academia, industry, and state and federal governments to ensure that America continues to be the world leader in information technology.” Yet from 2001, when the U.S. government launched the National Nanotechnology Initiative (NNI), through 2013 Intel’s expenditures on buybacks were almost four times the total NNI budget.""" This is a gross simplification as there are a few different ways to do this. The principle overall is the same though. To short a stock, you borrow X shares from a third party and sell them at the current price. You now owe the lender X shares but have the proceeds from the sale. If the share price falls you can buy back those shares at the new lower price, return them to the lender and pocket the difference. The risk comes when the share price goes the other way, you now owe the lender the new value of the shares, so have to find some way to cover the difference. This happened a while back when Porsche made a fortune buying shares in Volkswagen from short sellers, and the price unexpectedly rose. Clawback Provision. Stock grants and options were either canceled or forfeited if they'd already been paid out. None of the execs became destitute because of it but the action was significant.  Does anybody know how this compares to other cases of clawback? "The short version of JB King's excellent answer is that the company will typically buy back shares from the open market at market price. Sometimes, it will specifically target larger stakeholders, even controlling interests, who are making noise that they want to divest; if such an investor were to just dump their stock on the open market, neither the investor nor the company would be very happy with the resulting price collapse. In those cases, the company may offer an incentive price above market rates. In recent times, the investor looking to divest has often been the U.S. Government, who received stock in return for bailouts, and (with notable exceptions) turned a modest profit on many of them. Not enough to break even on the entire bailout, but the Government didn't just throw $700 billion in taxpayer money down a hole as conservative pundits would have you believe. In the '80s, a specific type of buy-back was made famous, called the ""leveraged buyout"". Basically, the company took out a huge loan against itself, and used that money to buy up all the company's publicly-traded shares, essentially becoming a private company. This became a popular tool among private equity groups, for better and worse." If a company doesn't take out loans to buy back the shares, is it still a bad move? I don't necessarily see the problem with companies retiring shares.  If the shares of say Apple have a P/E ratio of 10 and the price to book value max of 1. Wouldn't it be a smart move by the company and the share holders assuming the projected net revenue will hold for at least ten years if not increase.   I guess I don't know the true practice of buying back shares but at its core (could be more corrupt), I just don't see it as inherently bad. NASDAQ provides a very good IPO calendar as well for US listings.