Note: This article is courtesy of Iris.xyz
By Cameron Lilja / Director of Product Development, Nasdaq Global Information Services
Despite the recent spate of volatility, the stock market has experienced a resounding recovery since the financial crisis of 2008 with major indexes at or near record levels. After such a long, sustained bull market, one might ask, “Who are the buyers driving this market?”
The answer, perhaps surprisingly, is that listed companies themselves are among the biggest buyers of stock.
Where Do Buybacks Come From?
In the process of conducting business and other related activities, companies generate cash; the strategy surrounding its usage is critical for management and investor success.
Companies can deploy their cash in various ways. One option is to invest in growth opportunities such as research and development, acquisition activity, and general capital expenditures. Another is to return the cash to shareholders via a dividend payment or stock buyback. In the post-crisis economic environment, which has offered fits of uncertainty, companies have increasingly chosen to return their cash to shareholders in lieu of investing in riskier growth-related activities.
Nasdaq’s new white paper explores stock buybacks, often referred to as share repurchases, one of the methods for companies to return capital to shareholders. It includes an explanation of stock buyback programs, their benefits to shareholders, recent market trends for companies executing buybacks, and the implication for investors.
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