Investors invest in companies because they expect to receive money back in the future. Therefore investment won't happen unless companies have ways to pay back

Investors invest in companies because they expect to receive money back in the future. Therefore investment won't happen unless companies have ways to pay back investors. When a company has extra money, their options are to keep a rainy day fund, invest in growth, pay dividends or do a stock buyback. Rainy day funds are generally not big enough for extreme events. Investment opportunities only sometimes exist. Dividends are received as ordinary income by all investors, whether they wanted it or not. Stock buybacks as capital gains only by the investors who wanted it. Incidentally, contrary to most reporting on the topic, a stock buyback should not appreciably change the price of the company. Here is why not. Suppose that a company is worth $50 billion today, has $10 billion in cash reserves, and has a billion shares outstanding. It's stock price is $50/share. Now we do a $5 billion stock buyback. The company loses $5 billion in value (the amount of the buyback) and so is now worth $45 billion. For that $5 billion it purchases 100 million shares and destroys them. You now have a $45 billion dollar company with 900 million outstanding shares, and the stock price should still be $45 billion. You can enter different numbers, but the same result holds. Performing the stock buyback reduces the value of the company, and destroys shares in an equal proportion. Therefore the company price should be approximately the same. The theory here ignores higher order complications. For example dividends require more paperwork. But stock buybacks increase the volatility of the stock price, which increases the value of options. (Particularly long-term calls that are mostly held by people in the company.) The increased value of options comes out of the stock price. But still it mostly comes down to a choice of how to receive money.