Why Companies Buy Back Shares at Buying

Why Companies Buy Back Shares. It can be described as a procedure which enables a company to go back to the holders of its shares and offer to purchase the shares held by them. The net effect is a reduction in the total number of a company’s shares on issue.

Companies buy back shares as a form of ‘capital management’. Let’s look at some reasons why companies go for a share buyback: A purchase by a company of its own shares.

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If a company’s management believes that the company’s stock is undervalued, they may decide to buy back some of its shares from the market to increase the price of the remaining shares. Aren't we in a bit of a moral hazard si. Why would a company buy back its own shares? In some cases, a company will buy back their shares to intentionally drive up the price of their stock if they feel it is undervalued in the market.