One potential reason for a share repurchase is
A) to increase the power of a minority group of shareholders.
B) maximize the dilution in earnings associated with a merger.
C) a reduction in the firm's cost associated with servicing small stockholders.
D) to signal the market that the firm's stock price is too high.

Question

Quizplus · Accepted Answer

A share repurchase can reduce the number of outstanding shares, which may benefit the company by lowering the cost associated with shareholder servicing, particularly small stockholders. By reducing the number of outstanding shares, the company can reduce the number of shareholders it needs to communicate with, simplify communication and handling of annual meetings, and save money associated with distributing dividend checks and other documents. While share repurchases could also signal other messages, such as the belief that the company's stock is undervalued, C is the best choice given that the other options are not typically associated with share repurchases.

One Potential Reason for a Share Repurchase Is