Why Are Stocks Repurchases the Best Payout Alternative Method?

In: Business and Management

Submitted By goldenstature
Words 2855
Pages 12
Syracuse University

A Literature Review: Why are stocks repurchases the best payout alternative method?

Willie Reddic

Table of Contents

1.0 Introduction.……............................................................................................................3 2.0 Beginning Literature of Dividends and the Movement towards Repurchases .......3 3.0 Methods of Repurchases and Key Definition ...............................................................4 4.0 The Positives and Negatives on Methods of Repurchases ……....................................5 5.0 Summary and Conclusion ...........................................................................................10 6.0 References.....................................................................................................................11

1.0 Introduction
“A share repurchase distributes cash to existing shareholders in exchange for a fraction of the firm's outstanding equity. That is, cash is exchanged for a reduction in the number of shares outstanding.” (Wikipedia Foundation, Inc.) The intent of this paper is to review stock repurchases

as the preferred method of alternative payout for shareholders. There are many reasons why firms choose this option. Past literature shows substantial evidence of reasons that range from capital structure adjustments to takeover defense (Bagwell, 1991). However, in my opinion the strongest reason is because stock repurchases can be used as another method of paying out shareholders in the form of a dividend. In recent times, there have been multiple literary publications that proved that repurchasing is a viable option for firms. In the first section of this paper, I will provide a beginning overview of dividends and how stock repurchases became the new phenomenon during the late 1980s. The second part of this paper will focus on the different types…...

Similar Documents

Alternative Methods of Dispute Resolution (Adr)

...Alternative methods of dispute resolution (ADR) Alternative methods of dispute resolution also known as ADR are any procedures or combination of procedures that is employed in civil cases only, to settle disputes or disagreements between various parties. This method is used when the parties involved has to maintain a relationship after the dispute has been settled, as opposed to the court system whereby the parties involved are strangers and are happy to remain so.[1] There are various forms of ADR techniques as stated in a publication entitled Dispute Resolution Guidance[2], these include, Mediation, Conciliation, Neutral Evaluation, Expert determination, Adjudication and Arbitration. Mediation engages the services of a mediator to help the parties reach an acceptable agreement. The agreement is initially non-binding however if settlement is reached it can become a legally binding contract. Conciliation is similar to mediation; however the conciliator can recommend a solution. This term is gradually falling into disuse and is regarded as a form of mediation. Neutral Evaluation is where a third party gives a confidential opinion based on the facts provided by either parties, on the possible outcome of a trial, this opinion can then be used as the basis for settlement or further negotiation. Expert determination is a process by which an independent expert is allowed to investigate the dispute and deliver binding decisions. “Adjudication is when an expert is......

Words: 1666 - Pages: 7

Impact of Dividend on Stock Price

...“IMPACT OF DIVIDEND ON STOCK PRICES” ABSTRACT The project aims to establish the impact of dividend on market price of a share. This has been done for individual companies in Steel sector. After studying the basic concepts of dividends and dividend policy I am able to get a proper perspective of the requirements of the project and also gain a better understanding of the results obtained. I have looked to find the relation between pre dividend price change and the dividend using regression analysis. Similarly, I have analyzed the relation between the post dividend price change and the dividend. It is a matter of fact that dividends are declared by a company primarily to generate capital and also at certain times to maintain the market sentiment. It is in the best interests of the company to maximize the market value of its share and companies use dividend as a tool to maintain their corporate image. However, the degree of correlation between the dividend and the market price is low which implies that several other internal and external factors affect the market value of shares. To gain a holistic picture, I also did a comparative study of two peers in a sector (steel)to better understand how the specific requirements of each sector also impact the dividend policy of a company. The conclusions derived from the analysis performed further consolidated theoretical knowledge and deviations were better understood. SYNOPSIS “Impact......

Words: 8285 - Pages: 34

Finding the Best Stock

...How to Find the Best Stocks Introduction Investing in the stock market can be a risky, but many times rewarding business. In order to ensure that you turn a profit, you need to invest in the right stocks. Finding the right stocks can be a challenge for those that are new to investing, but with some tips and advice, and a little knowledge, finding those lucrative stocks is made a whole lot easier. Before starting off, you need to understand your goals and how you are going to achieve them. In addition to formulating goals, you need to do some basic market research. Ask yourself questions like “What market am I going to invest in?” and “How much am I willing to risk?” Now that you have your basic goals and research completed, you need to get down to actual investing. Before you do this, you need to know which stocks you are going to be investing in. There are many tools online that can help you, such as Google Stocks, which helps you keep track of certain stocks to see which direction they are trending in. As general advice, the best stocks to invest in are those that have recently hit rock bottom, and are on their way back up. Investment Risk Profile Simply put, your investment risk profile is how “risky” you are as an investor. Most people think that the stock market is 100% safe and risk-free to invest in, but in reality people do lose money in the stock market, just look at how many lost money in the Great Depression. Determining your investment risk......

Words: 3045 - Pages: 13

Payout Policy Analysis – Apple Computer

...Title Payout Policy Analysis – Apple Computer Word Count: 1,952 Contents Page Executive summary 1 Introduction 2 Main Body 2 Conclusion and recommendations 7 Bibliography 8 Executive summary The main aim of this report is to interpret Apple’s recent change in payout decision and to evaluate the impact of the new policy on shareholders’ value and Apple’s strategy. Firstly, previous and current payout policy will be described separately. Then, by analyzing firm’s previous and current circumstance including the change of the CEO, some considerable changes in Apple and the underlying reasons, are worth to discuss. This report concludes that the current payout policy—paying dividends along with the buyback plan—is more suitable for current company. Finally, implications of the new policy will be analyzed through using relevant and irrelevant theories as well as relevant data of competitors in the same industry. This report predicts that under the current good momentum of development, if Apple can hold this situation, it is prioritized to maintain this new policy. Introduction It is a Payout policy appraisal of Apple Computer which is reported to the firm’s shareholders or investors. The objectives of this report are shown below: * Analyze the pros and cons on recent change in payout policy. * Evaluate implications of the new policy on shareholder’s value and Apple’s financing and investment strategy. For a more detailed image analysis, some......

Words: 2316 - Pages: 10

Stock Valuation Methods

...In financial markets, stock valuation is the method of calculating theoretical values of companies and their stocks. The main use of these methods is to predict future market prices, or more generally, potential market prices, and thus to profit from price movement – stocks that are judged undervalued (with respect to their theoretical value) are bought, while stocks that are judged overvalued are sold, in the expectation that undervalued stocks will, on the whole, rise in value, while overvalued stocks will, on the whole, fall. In the view of fundamental analysis, stock valuation based on fundamentals aims to give an estimate of their intrinsic value of the stock, based on predictions of the future cash flows and profitability of the business. Fundamental analysis may be replaced or augmented by market criteria – what the market will pay for the stock, without any necessary notion of intrinsic value. These can be combined as "predictions of future cash flows/profits (fundamental)", together with "what will the market pay for these profits?" These can be seen as "supply and demand" sides – what underlies the supply (of stock), and what drives the (market) demand for stock? In the view of others, such as John Maynard Keynes, stock valuation is not a prediction but a convention, which serves to facilitate investment and ensure that stocks are liquid, despite being underpinned by an illiquid business and its illiquid investments, such as factories. Contents ......

Words: 4315 - Pages: 18

Corporate Payout Policy

...Corporate  Payout  Policy   Select  three  publicly  listed  companies.  Analyse  their  recent  dividend  decisions  and  use   these  to  support  your  critical  assessment  of  the  main  theories  of  corporate  payout   policies.     Dividend  policy  is  one  of  the  most  important  decisions  that  a  manager  of  a  firm  makes  in   order  to  achieve  the  goal  of  the  firm,  maximising  shareholder  wealth.  Determining  a   company's  corporate  payout  policy  is  a  question  of  "how  much,  when,  and  how",  that  is,  the   value  of  the  payouts,  when  to  deliver  the  surplus  cash  to  investors,  and  in  what  form  should   the  payouts  be  delivered.  Corporate  payout  policy  is  also  one  of  the  most  polarising  topics  in   finance.  Theorists  such  as  DeAngelo  and  DeAngelo  (2006a,  2006b,  2008),  and  Fama  and   French  advance  a  theory  on  the  financial  life-­‐cycle  of  the  firm  determining  dividend  policy.   Other  academics  are  less  sanguine  about  how  dividends  affect  the ......

Words: 2296 - Pages: 10

Alternative Methods of Resolving Legal Disputes

...A legal dispute is a disagreement over the existence of a legal duty or right. Usually most legal disputes are resolved in a court of law. However, there are alternative methods of resolving legal disputes other than by a court. Such methods include Tribunals as well as Arbitration. There are different Tribunals which exist to resolve a variety of disputes. Generally, a tribunal is known to be any person or institution with the authority to judge, to pass that particular judgment, or to determine claims or disputes. For example the industrial tribunal sits to dertermine statutory employment law disputes such as wrongful dismissal, unfair dismissal and redundancy. However industrial tribunals serve to resolve many more disputes than these. These tribunals handle the majority of employment law disputes between employers and employees. Advantages | Disadvantages | Cheaper | Unfair imbalance between represented and unrepresented parties | Speedy, Informal and Flexible | The no-costs rule and lack of legal aid penalize poor litigants | Accessibility | May become complex over time | Freedom from technicality | May lack some of the perceived independence of the judiciary | Specialism | May result in ill founded claims | An Arbitration is a legal technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons, known as the arbitrators, arbiters or arbitral tribunal, by whose decision (the "award")......

Words: 607 - Pages: 3

Why Investing in Stocks Is Good

...have heard about people talking about buying and selling stocks, and I'm here to tell you what they are and why you should invest in stocks. First of all, you might be wondering what are stocks? A stock is an equity investment, ownership in a company. For a corporation, equity capital (money that a business gets from its owners) is provided by stockholders who buy shares of its stocks. Since the stockholders have a stake in the company, they also share in the triumph of the company. When the company has a great year, that means that your stocks will increase too which is how you make money with stocks. Another way to make money, is by getting paid dividends. A dividend is given money, stock or other property that a company pays to stockholders. The dividends are paid out of earnings which is why a stockholder would share in the triumph of the company too. One thing to note, is that a company is not required to pay out dividends. When a company has a bad year, its board of director's may choose not to give out dividends and instead use that money to cover some of the expenses for that year. A company may also keep some of the earnings to help pay for expansion, research, and product development. So, if the company has a bad year that means that their stock value well go down in price and if you own some of their stock you could start to lose money. Here's an example on how you might buy and sell stock, say you buy stock, now you should've have done some research before and......

Words: 1122 - Pages: 5

Why Breast Is Best!

...Why Breast is best! To breast feed or to formula fed? That question crosses every new mother’s mind. The choice you make to that question is one of the first and probably the most significant decisions you will make as a new parent. Breastfeeding takes some time to learn for both you and your infant but is definitely worth the effort and time. Your choice to breast feed your newborn infant will affect his or her whole life, from birth throughout his or her adult life. There is no question that a mother truly wants the best for her children from the time they learn they are expecting their new bundle of joy. Breast milk has the perfect combination of proteins, fats, vitamins, and carbohydrates your infant needs. Breast milk is far more than good food. It is a living fluid that protects your infant from disease and actively contributes to the development of your infant. As mentioned by Arsenault (2011) breast milk not only provides the nutrition your infant needs but it also provides protection by supplying your infant his or her first antibodies and immunities. Breast milk aids in protecting infants against infection and disease. According to the La Leche League International (LLL) (2004) Infant mortality rates are higher among artificially fed infants, even in places where everyone has access to safe water and good medical care. Morbidity rates- how often babies get sick- are also higher among artificially fed infants in both the developed and the developing world.......

Words: 2539 - Pages: 11

Why the Highest Price Is Not the Best Price?

...Why the Highest Price is not the Best Price? It is about how to practice ‘value based pricing’ that support profits and promotes better relationships wth customers Accoring to them Value based pricing means finding out what the value is your offerings realtive to competitors and then charging as high as they can But t,s value based pricing usually shortsighted in 2 respects: 1)It does not consider the profiting from delivering superior value that may result in greaterprofitability 2)It weakens customer relationship Resim fiyatkasa temalı CASE:Electron Instruments manufactures scanning electron microscopes (SEMs).In 2007 as a new initiative Electron developed and introduced a desktop SEM They believed this desktop SEMs vastly superior to the next best alternative Japenese,but they did not conduct any customer value research their belief based on qualitative feedback from a few beta tes customers who were familiar wth SEM technology and most of them was the top customers of expensive SEMS They decided to sell these SEMS %25 higher then the price of the next best alternative. But the sales were not as good as they thouht So because of these poor results they decided to investigate what cause that.Marketing discovered that even they were not wrong about easy use of desktop SEM sor technological properties but their prospective customers did not evaluate them at the same way.Furter marketing discovered the close systme design whşich doesnt allow upgrades such......

Words: 1222 - Pages: 5

Best Alternative to Negotiated Agreement.

...thorough methodology to help you prepare to negotiate. Our five-step pre-negotiation framework offers a simple yet effective approach. (In the chapters that follow, we will add to this list as we confront more complex negotiations.) Step 1: Assess your BATNA. The first step in any negotiation is to ask yourself, “What will I do if the current negotiation ends in no deal?” In other words, you need to assess your BATNA, or best alternative to negotiated agreement—the course of action you will pursue if and when the current negotiation ends in an impasse.3 Without a clear understanding of your BATNA, it is impossible to know when to accept a final offer and when to walk away in order to pursue other options. Your BATNA assessment requires the following three steps: 1.Identify all of the plausible alternative options you might pursue if you are unable to reach an agreement with the other party. 2.Estimate the value associated with each alternative. 3.Select the best alternative; this is your BATNA. In the Hamilton case, you have a number of alternatives if the negotiation with Connie Vega ends in impasse: you might wait for other offers, you might approach Quincy Developments to finalize the deal, or you might decide not to sell at all. The information available to you strongly suggests that your BATNA would be to finalize a deal with Quincy. Step 2: Calculate your reservation value. An analysis of your BATNA is critical because it allows you to calculate your......

Words: 473 - Pages: 2

Alternative Costing Method

...from Activity Based Costing to Activity Based Management. When looking to adopt the Activity Based Costing system, The Hampshire Company will need identify the activities the company performs. Identifying activities can be difficult and they will need to evaluate the tasks performed and decide which tasks will be classified as separate activities and which will be combined. After identifying the activities, the team will develop a flowchart of all the steps and processed needed to produce the umbrellas. By using Activity Based Costing, The Hampshire Company will have a higher operating income for the traditional stick umbrellas, using this method. The production deal with Tours Today for the collapsible umbrellas will produce a positive operating income, however, it is much lower using ABC than it would be if Traditional Costing method were used. Because The Hampshire Company is working a deal with Tours Today, it can be determined on whether or not it is beneficial for the company to continue producing the collapsible umbrellas. Reference: Buys, Pieter, Green, Kevin. (2006). Strategic Costing Techniques – Activity Based Costing. Retrieved from http://search.proquest.com.ezproxy.snhu.edu/docview/ 215228427?accountid=3783 Horngren, C., Datar, S., & Rajan, M. (2015). Cost Accounting A Managerial Emphasis. Upper Saddle River, New Jersey: Pearson Education, Inc....

Words: 401 - Pages: 2

The Evolving Relation Between Earnings, Dividends, and Stock Repurchases

...The evolving relation between earnings, dividends, and stock repurchases Douglas J. Skinner Journal of Financial Economics, 2008 Abstract — This paper examines how the relation between earnings and payout policy has evolved over the last three decades. Three principal groups of payers have emerged: firms that pay dividends and make regular repurchases, firms that make regular repurchases, and firms that make occasional repurchases. Firms that only pay dividends are largely extinct. Repurchases are increasingly used in place of dividends, even for firms that continue to pay dividends. While other factors help explain the timing of repurchases, the overall level of repurchases is fundamentally determined by earnings. The results suggest that repurchases are now the dominant form of payout. I. SUMMARY Corporate payout policy and reported earnings have changed significantly over the last 30 years. Fama and French (2001) report that the proportion of listed US firms paying regular cash dividends declined from 66.5% in 1978 to 20.8% in 1999, and DeAngelo, DeAngelo, and Skinner (2000) show that special dividends, an important part of firms’ payout policies until the 1960s, have all but disappeared. DeAngelo, DeAngelo, and Skinner (2004) report that aggregate regular dividends paid by US firms increase from 1978 to 2000, largely due to an increasingly concentrated distribution of dividend payments. Stock repurchases first emerged as an economically significant phenomenon in......

Words: 573 - Pages: 3

Why Iact College Is the Best?

...: COMMUNICATION ENGLISH 102 Pre-writing Why Is IACT The Best? Location * Strategic place,Public Transport * LRT,Bus and Taxi stands * Places to hangout&purchase electronics stuffs * Shopping mall Facilities * Gym,Café and PC Labs * To keep the students’ body in shape,variety of food * Free for students,cheap * Saves students’ time and Learning Method * Project Learning Method * Creative and Critical Thinking * Industry based practices * Widen students’ knowledge Outline Introduction-Why pick IACT?How does IACT College became the number one choice for creative study?According to the students’ they choose IACT College due to its Location,Programmes,Facilities and Learning Methods. Body IACT is in the strategic place as it becomes handy for the students. * Petaling Jaya – Number of places to eat (eg.KFC,PIZZA and Subway) * Lots of places to hangout(eg.Jaya Shopping Centre,Jaya One and Digital Mall. * Public Transports – Asia Jaya LRT Station,Bus and Taxi stands IACT provides plenty of facilities to give the students a happy campus life. * Recreational facilities such as Monster Fit Gym to keep fit,Swimming pool to cool off and Bat Cave to relax and release mind tension. * Study facilities such as PC Labs and Mac Labs for the students to do their assingments. IACT provides programmes that are very effective and their learning methods allow the students to peform better at......

Words: 735 - Pages: 3

Reasons for Stock Repurchase

...Open market repurchases and employee options Kathleen M. Kahle* Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, PA 15260, USA (Received 20 September 2000; accepted 6 June 2001) Abstract This paper examines how stock options affect the decision to repurchase shares. Firms announce repurchases when executives have large numbers of options outstanding and when employees have large numbers of options currently exercisable. Once the decision to repurchase is made, the amount repurchased is positively related to total options exercisable by all employees but independent of managerial options. These results are consistent with managers repurchasing both to maximize their own wealth and to fund employee stock option exercises. The market appears to recognize this motive, however, and reacts less positively to repurchases announced by firms with high levels of nonmanagerial options. JEL Classification:G30, G32 Key Words: share repurchase, executive stock options, employee stock options I thank Ken Lehn, Frederik Schlingemann, Kuldeep Shastri, René Stulz, Shawn Thomas, Cynthia von Skansen, Ralph Walkling, and an anonymous referee for helpful comments and suggestions. Tomas Jandik and Gang Hu provided excellent research assistance. * Tel.: 412 648 1519, Fax: 412 648 1693 E-mail address: kkahle@katz.pitt.edu 0304-405X/00$-see front matter © 2002 Elsevier Science S.A. All rights reserved 1. Introduction Early studies of open market stock repurchases......

Words: 12612 - Pages: 51

Ella Ballentine | Hard Drives Accessories | 19. Marshmello Ft Bastille Happier mp3