Question

Do you agree that stock buybacks really do not return cash to shock-holders because only those who sell back stock receive the cash. Explain in about 150 words.

Answer 1

When companies are announcing a share buyback,it will mean that investors will be tendering their stock into the buyback option and company will be purchasing their shares but company generally offers a lower amount of options to buyback the share because company generally conducts buyback of the share to a certain limit and not all the investors can tender their shares because the number of shares to be bought back is very low.

Another reason is that investors are generally invested in the company for the longer period of time and they do not want to sell out their investments and realise the cash because they are getting a higher amount of money and they will instead be trying to invest for longer period as when they will realise their investment it can even lead to taxation so they will be trying to skip the buyback offer which has been provided by the company and hence it can be said that when the buyback is announced by the company it does not lead to generation of cash for all the shareholders as many of the shareholders will be skipping this buy back option and it will only be leading to generation of cash for a lower number of shareholders who sell their shares in the buyback.

Hence, i agree with this statement