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Basic Question 10 of 13

Why do companies use share repurchase programs?

I. To increase share price over the long term by increasing a continuing shareholder's portion of the future cash flows.
II. To optimize the company's capital structure.
III. To return capital to shareholders in a more tax efficient manner than cash dividend payouts.
IV. To offset the dilutive impact of other share issuance programs such as stock option programs.
V. To redeploy excess cash flow.
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User Contributed Comments 3

User Comment
mysking Anyone out there mind explaining?
swisha I. since treasury stock don't pay dividends now there is more capital to be distributed to the outstanding shareholders. II. repurchase programs may help to manage capital structure (sell bonds so they can buy back some shares) III. In some countries capital gains taxes are lower than cash dividend taxes (when you recognize that your stock appreciated in your taxes, you would get taxed less compared to your dividend income). IV. When stock options are exercised, repurchases might be necessary to manage the capital structure. V. when companies have excess cash just sitting there it serves the stockholders better if shares are repurchased (increases stock price).
rumshine III. assumes it's more tax efficient in every country. Is that true?
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I was very pleased with your notes and question bank. I especially like the mock exams because it helped to pull everything together.
Martin Rockenfeldt

Martin Rockenfeldt

Learning Outcome Statements

compare stable dividend with constant dividend payout ratio, and calculate the dividend under each policy;

describe broad trends in corporate payout policies;

CFA® 2025 Level II Curriculum, Volume 3, Module 16.