How do companies buy back their shares?

By far, the most common way companies buy back their shares is on the open market. In other words, the company will use a broker to purchase a specified amount of shares, much in the same way you or I would do if we wanted to buy stock in a company (but probably on a much larger scale). Roughly 95% of stock buybacks take place on the open market.

What is a share buyback?

A share buyback is a decision by a company to repurchase some of its own shares in the open market. A company might buy back its shares to boost the value of the stock and to improve its financial statements. These shares may be allocated for employee compensation, held for a later secondary offering, or retired.

How do companies pay for a stock buyback?

Companies can pay for a stock buyback through cash on hand or through debt financing (borrowing money). Companies will either buy their shares on the market or purchase shares from existing shareholders.

Why do companies buy back their own stock?

The main reason companies buy back their own stock is to create value for their shareholders. In this case, value means a rising share price. Here’s how it works: Whenever there’s demand for a company’s shares, the price of the stock rises.