Firms can use share repurchases as a dividend substitute.

Question

Quizplus · Accepted Answer

Share repurchases can be used by firms as a way to return value to shareholders in lieu of paying dividends. When a company repurchases its own shares, it reduces the number of outstanding shares, increasing the ownership stake of remaining shareholders and potentially raising the stock price. This can be seen as a way to distribute earnings to shareholders without the ongoing commitment of paying regular dividends.

Firms Can Use Share Repurchases as a Dividend Substitute