1 Introduction
Share buy-backs are a way to distribute excess profits to shareholders. When capital markets are perfect and frictionless, dividends and share repurchases are perfect substitutes. In a perfect world the value of a company is only related to its investments. Therefore the way the company distributes excess profits to investors will not impact shareholders wealth. One possible answer to the question whether buy-backs are a sound strategy for creating shareholders wealth could be that buy-backs are not relevant for creating shareholders wealth.
However the capital markets are not perfect and frictionless. To answer the question more accurately we have to account for market imperfections such as taxes, agency costs, information asymmetry and transaction costs.
In an attempt to answer the question we have to take several points of view. From the company perspective share buy-backs and off market buy-backs in particular offer several advantages over other ways of......
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Approximate Word Count: 3089
Approximate Pages: 12 (260 words per double-spaced page) |