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Why do Companies Repurchase Shares?
Companies buy back their own shares for a variety of reasons, and do so by paying the current market value of its shares on the open market.
Reasons to Repurchase Shares
- Reduce the number of outstanding shares in order to increase the market price.
- To issue shares to employees as part of compensation programs.
- Company has more cash than it needs for current and upcoming projects.
Types of Repurchases
- Retirement of shares: Shares cancelled after repurchased
- The cancellation is permanent
- Shares can no longer be reissued
- Increases the market price of remaining shares
- The market value of the company is divided into fewer shares
- Treasury shares: Shares not cancelled after repurchased and held by the company
- Shares can be reissued
- Typically used for share-based compensation