Why do listed companies buy back shares?

The so-called share repurchase means that listed companies buy back the shares held by investors at a certain price, which is generally higher than the market price at that time. So why do listed companies buy back shares?

The first advantage is that you can avoid taxes.

Tax avoidance is an important reason for major shareholders to take stock repurchase. Because the profit from stock trading needs to pay a lower tax rate than the income tax paid by enterprises, enterprises can use the money originally used for dividends for stock repurchase, which can help shareholders and investors avoid a lot of taxes. This is also the reason why stock repurchase is very popular in the board of directors of many companies.

The second advantage is that it can beautify the financial data of enterprises.

When the shares are repurchased, the number of shares circulating in the market will decrease, so the market's expectation of earnings per share will increase when the company's profits remain unchanged, thus stimulating the rise of the stock price.

The third benefit is to prevent investors from forming dividend dependence.

When a company starts to pay dividends, investors will become dependent on dividends. Once you don't pay dividends halfway, investors will easily make irrational decisions, so many high-growth technology companies will tend not to pay dividends at first.

The fourth advantage is that it is helpful for equity incentives.

As we all know, many modern startups and internet companies are popular with equity incentives, especially executives, who will get high options. However, executives are mobile, and some executives will leave, so with their departure, the company's equity will flow to the outside, which may lead to the change of ownership.

If it is agreed that the company has the right to buy back these shares at a certain price when the executives leave the company, this will not only ensure that the executives enjoy the profits of the company's growth, but also prevent the shares from falling into the hands of others.

Therefore, when the market fluctuates greatly, some companies adopt self-service stock repurchase, which will generally send a positive signal and the stock price will rise.