Drawback of stock repurchases, Finance Basics

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Drawback of Stock Repurchases

1. High price

A company may find it not easy to repurchase shares at their recent value and price paid may be higher to the detriment of remaining shareholders.

2. Market Signaling

Despite director's effort at trying to convince markets or else, a share repurchase may be interpreted because a signal suggesting such the company lacks proper investment opportunities. This may be interpreted like a sign of management failure.

3. Loss of investment income

The interest such could have been earned from investment of additional cash is lost.


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