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

Stock buybacks are conducted by company in order to buy back their share from the market and not all the investors who are holding the stock are going to sell their shares in the buyback because buyback will generally be having a lower proportion of buying back of the flotation from the market and it will be sold by a low number of investors.

Stock buybacks will be not opted by all of the investors because there are majority of the investors who have invested into the company for a longer period of time and they do not want to liquidate their ownership into the company by selling their stock and they will generally be skipping the option of selling the stock and those retail investors who are generally invested for lower period of time will be tendering their shares for the buyback and hence it can be said that stock buybacks do not return cash to all the shareholders but only return cash to those share holders who are tendering their shares in the stock buyback and selling it to the company.