[2] Repurchases allow stockholders to delay taxes which they would have been required to pay on dividends in the year the dividends are paid, to instead pay taxes on the capital gains they receive when they sell the stock, whose price is now proportionally higher because of the smaller number of shares outstanding.
In the late 20th and the early 21st century, there was a sharp rise in the volume of share repurchases in the United States.
Large share repurchases started later in Europe than in the United States, but are nowadays a common practice around the world.
[4] U.S. Securities and Exchange Commission (SEC) rule 10b-18 sets requirements for stock repurchase in the United States.
[5] Rule 10b-18 provides a voluntary "safe harbor" from liability for market manipulation under Sections 9(a)(2) and 10(b) of the Securities Exchange Act of 1934.
Repurchases allow stockholders to delay taxes which they would have been required to pay on dividends in the year the dividends are paid, to instead pay taxes on the capital gains they receive when they sell the stock, whose price is now higher because of the smaller number of shares outstanding.
Anti-takeover strategies, therefore, often include maintaining a lean cash position and share repurchases bolster the stock price, making a takeover more expensive.
There are, however, daily buyback limits which restrict the amount of stock that can be bought over a particular time interval again ranging from months to even years.
A Dutch auction offer specifies a price range within which the shares will ultimately be purchased.
A listed company may also buy back its shares in on-market trading on the stock exchange, following the passing of an ordinary resolution if over the 10/12 limit.
A listed company may also buy unmarketable parcels of shares from shareholders (called a "minimum holding buyback").
[13] Share repurchases have been critically evaluated since the 1970's when Securities and Exchange Commission ascertained "that a large volume of stock buybacks would manipulate the market".
[14] According to Lenore Palladino, an economist at the Roosevelt Institute, stock buy back programs are "one of the drivers of our imbalanced economy, in which corporate profits and shareholder payments continue to grow while wages for typical workers stay flat".
Share repurchases has been criticized for causing misaligned incentives between total shareholder value and executive compensation.