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Why buyback of shares is done?

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The buyback of shares is beneficial to a company as well as the shareholders. A company announces a buyback on account of various reasons stated below:

  1. The buyback helps a company to boost the share prices of their undervalued stock.
  2. The surplus cash returned to shareholders via buyback helps boost the shareholder's value and confidence.
  3. The buyback acts as a finance reengineering tool to achieve the optimum capital structure.
  4. The buyback helps increase the promoter's stake and thus acts as a defense strategy to protect them from the threat of hostile takeovers.
  5. The buyback allows shareholders to exit at a premium price as buybacks are offered at a price higher than the current market price.

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