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I think you’ve shown equivalence? 100 shareholders own ($1 cash + $99 in stock) or 99 shareholders ($100 in stock) and one former shareholder ($100 in cash). (N
by wjnc 4y ago
I think you’ve shown equivalence? 100 shareholders own ($1 cash + $99 in stock) or 99 shareholders ($100 in stock) and one former shareholder ($100 in cash). (Not trying to be snarky here. Appreciate the answer.)
Gone out for a reputable source:
CFA [1]
John Cochrane: “That was the big point. Share buybacks are a good way to get money out of firms with no ideas, into firms with good ideas.” [2]
[1] https://www.cfainstitute.org/en/membership/professional-development/refresher-readings/analysis-dividends-share-repurchases https://www.cfainstitute.org/en/membership/professional-deve...
[2] https://johnhcochrane.blogspot.com/2018/04/buybacks-redux.html?m=1 https://johnhcochrane.blogspot.com/2018/04/buybacks-redux.ht...
- jmalicki 4y agoYes - they're equivalent in terms of cash and market cap, but not equivalent in terms of number of outstanding shares or share price. If the management team is compensated with unvested stock or options, they receive the benefits from share buybacks, but not from dividends (since those only go to actual shareholders) - which is part of why management teams prefer buybacks.
- neilc 4y agoAlso not equivalent in terms of tax treatment.