Since the mid‐1960's companies have been reacquiring their own shares in great numbers. In fact, during the past several years firms seem to have become increasingly aware of the impact that buying back stock can have on meeting corporate objectives and satisfying shareholders. But why do some corporations repurchase their own stock while others do not and what are the causes of the recent increase in stock repurchases? This study attempts to document the reasons underlying the current proliferation of common stock repurchases and to compare the rationale of financial managers with theory. The value of this investigation lies not only in providing an empirical explanation of an important trend but also in investigating the relationship between the theory and practice of stock buybacks. As Levy and Sarnat [9, p. 273] note “the ultimate test of the theory of corporate finance is not its formal elegance but lies in our ability to apply the theoretical concepts to actual business problems.” Hence, the “reality test” of the theory underlying stock repurchases rests with whether the theory is borne out by actual practice. I. Stock Repurchases in Perspective A. Trends in Stock Repurchases Although companies have bought back their stock
The Journal of Financial Research – Wiley
Published: Sep 1, 1981
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