求助：...repurchases play a critical economic role in preventing mature companies from"overinvesting" and in allow investor to move their capital from mature sector with too much capital into high-growth industries with too little. but, in dividends, of course, accomplish the same function: so why are repurchase growth much more rapidly?

diccuss the above statement and review the various arguments for stock repurchases.

When a wants to pay out cash to its shareholders, it usually declares a cash dividend. The alternative is to repurchases its own stock. There is an important difference in taxation of dividends and stock repurchases. Dividends are taxed as ordinary income, but stockholders who sell shares back to the firm pay tax only on capital gains realized in the sale.

Stock repurchase is a firm repurchase of outstanding shares of its common stock. A "stock repurchase”, or buyback occurs when a corporation buys back its own stock from stockholders. For example, Standard Oil of Indiana repurchased about $30 million of its own shares in 1984 for a total amount of approximately $1.8 million. Now stock repurchases has increasingly popular, like, Texaco IBM are spent large sums of money on stock repurchase. This may happen by open market repurchases, by a "self-tender" (i.e., a tender offer by a public company offering to buy some number of shares pro rata from all shareholders), or by a standing offer to repurchase a given number of shares at a fixed price or through negotiation with large stockholders.

Firms have implemented stock repurchase for a variety of reasons, including: Studies have indicated that corporations have implemented stock repurchase programs for a variety of reasons, including: (1) providing a signal to investors that the stock is a good investment; (2) the availability of excess cash on hands ; (3) management's felt that the company's stock is undervalued; (4) the need for company stock to be provided for stock option and retirement plans; (5) the desire for an improvement in earnings per share and the actual price of the stock; (6) the reducing of the company's cost of capital through the substitution of cheaper debt for more expensive equity; and (7) providing a vehicle for distributing excess cash to shareholders that is more tax-efficient than distributing dividends. 4) To make a large capital structure change.

The stock repurchase has the following advantages:

(7) Repurchase is usually treated as a capital gain for the share investors (if share is held longer than a certain statutory period, e.g. 12 months). Whereas dividends were subject to ordinary income tax, gains realized from selling shares back to the corporation were subject to the lower capital gain tax rate. . However this differs according to the tax jurisdiction the company is in.

(1) In theory, the buyback should not be a short term fix to the stock price but a rational use of cash, implying that a company's best investment alternative is to buy back its stock. Normally these purchases are done with free cash flow, but not always.

(3) Repurchase serve as a signal that current share price is undervalued; this is consistent with firm's goal of shareholder value maximization. Therefore, repurchase is not only good for those shareholders accepted the repurchase, but also good for those that doesn’t accept the repurchase, because the likely effect of repurchase is an upward pressure on share price. This is different from dividend where the share prices usually face downward pressure once it goes ex-dividend.

(4) The need for company stock to acquire shares for management and employee incentive plans, including stock options and stock-purchase plans, or other qualified retirement plan.

(5) There are stockholders who sell their shares back to the company and those who keep their share. Then the tax advantage for selling stockholders is clear. For example, a company ABC earns $5 per share and pays $2 per share owning one share therefore has one share worth $50 plus $2 in each from his dividend. However, if the company uses its dividend funds for share repurchase instead of dividends each $2 will reduce outstanding stock by 1/50 of a share, then the EPS for the continuing stockholder will thus rise by approximately 1/50 from $5 to $6.9.

The tax benefit and price appreciation are the major reasons for the growing important of share repurchase in recent years.

(6) The reducing of the company's cost of capital through the substitution of cheaper debt for more expensive equity, with a possible corresponding increase in stockholders’ wealth.

(8) Prevent empire building by management where they invest not for return but for their own reputation and glory.

(2) When a company chooses to use its excess cash to repurchase shares of its own stock, it may be because the company may think the shares are selling below a level that they're actually worth. This sends a signal to investors that the company thinks its own stock is the best investment it could make. When the company buys back its own stock, it forgoes investing in other securities or making additional capital investments.