I don't understand your reasoning for why the price increases. To use your equation with my original example: Initially: market cap = $100 book value = $20

I don't understand your reasoning for why the price increases. To use your equation with my original example: Initially: market cap = $100 book value = $20 discounted future cash flows = $80 share price = $1 number of outstanding shares = 100 After the buyback: market cap = $99 book value = $19 discounted future cash flows = $80 share price = $1 number of outstanding shares = 99 So the market cap didn't change. I agree it's effectively the same as dividends (although I think buybacks are slightly better for the taxes of stockholders).