Which of the following reasons is used to justify stock repurchases?
A) The repurchase narrows ownership.
B) The repurchase modifies the firm's capital structure.
C) The repurchase reduces the firm's costs associated with servicing small stockholders.
D) All of the above.

Question

Quizplus · Accepted Answer

All of the given reasons are used to justify stock repurchases.

A) The repurchase narrows ownership: By buying back stocks, the ownership of the company gets concentrated into the hands of fewer shareholders. This can make it easier for management to make decisions and can also prevent hostile takeovers or activist investors from gaining too much influence.

B) The repurchase modifies the firm's capital structure: A company can use repurchased shares to adjust its capital structure without changing debt levels. This can help improve the company's financial ratios, such as earnings per share and return on equity.

C) The repurchase reduces the firm's costs associated with servicing small stockholders: By buying back shares, the company can reduce the number of shareholders it has to communicate with, reducing administrative costs. Repurchasing also prevents the dilution of ownership that may occur when new shares are issued.

Therefore, all of these reasons are used to justify stock repurchases.

Which of the Following Reasons Is Used to Justify Stock