From the firm's point of view, a major advantage of stock repurchases over cash dividends is
A) a commitment to maintain or increase repurchases every year.
B) a stronger signal about the firm's financial strength.
C) that they restrain agency costs.
D) that the repurchases imply no commitment to pay the same amount or more every year.

Question

Quizplus · Accepted Answer

Stock repurchases do not create an expectation of consistent payments, unlike cash dividends, which are expected to be paid consistently. This provides firms with more flexibility in managing their cash flows and retaining earnings for future investments without the pressure of meeting shareholder expectations for regular cash payments. Additionally, stock repurchases do not create taxable events for shareholders, unlike cash dividends, which are subject to dividend taxes.

From the Firm's Point of View, a Major Advantage of Stock