Share repurchase refers to the behavior of the company to repurchase the issued or circulating shares of the company according to certain procedures. It is a defensive method to change the capital structure by repurchasing the company’s outstanding shares on a large scale. The target company or its directors and supervisors repurchase the shares of the target company.
There are two basic forms of share repurchase: one is that the target company distributes available cash, provident funds and preferred shares to shareholders in exchange for the shares held by the latter ; buy back its own stock.
Shares that are repurchased by a company are called “treasury stock” in accounting. Once a large number of shares are repurchased by the company, the result is bound to reduce the number of shares in circulation. Assuming that the repurchase does not affect the company’s earnings, the yield per share of the remaining shares will increase, which will increase the market price of each share. If the target company offers to acquire its stock at a higher price than the acquirer, the acquirer also has to raise its acquisition price, so that the acquisition plan needs more funds to support, which makes it more difficult.
The implementation of share repurchase must take into account the attitude of local corporate laws to repurchase. Companies in many states in the United States believe that it is illegal to obtain corporate stock only to maintain the control of the enterprise management over the enterprise; but if it is to maintain the current business policy of the enterprise However, the competition for control is essentially to safeguard the interests of the company, and repurchase is permissible. my country’s “Company Law” expressly prohibits companies from acquiring the company’s shares, but canceling the shares in order to reduce the company’s capital or with the holding company’s shares. Except when other companies merge.
Is it good or bad for listed companies to buy back shares?
Generally good. Because the repurchase of share capital requires the listed company to use its own funds to buy back the stocks in the secondary market , the number of shares in circulation after the repurchase will decrease, and the earnings per share will increase. It also shows that the listed company has sufficient cash flow. This is good news for the market. However, it should be noted that good news does not mean that the stock price will rise. In the secondary market, there are often cases where the stock price of the listed company will fall after the repurchase.