Buybacks (rather than dividends) are just about taxes. Suppose a company worth $100 (100 shares outstanding) wants to return $10 in cash to shareholders. Two ch

Buybacks (rather than dividends) are just about taxes. Suppose a company worth $100 (100 shares outstanding) wants to return $10 in cash to shareholders. Two choices: a) Dividends. Each shareholder receives $0.10/share in taxable dividends payable in the same calendar year. Share price drops to $0.90/share. b) Buyback. The company buys 10 shares, leaving share price at $1 but now only 90 shares outstanding. With option (a) each shareholder must pay taxes on $0.10 in the same tax year. With option (b), shareholders can choose not to pay taxes immediately by not selling. Also taxes are paid on ($1 - cost basis) which might be a lot less than $0.10/share. This is only evidence of the fact that people will structure their transactions to avoid taxes. Without taxes favoring buybacks they would be identical to dividends.