Abstract:

Common theories as to why companies purchase their stock include signaling to the market the stock is selling at a discount, using treasury stock for the issuance of contingent shares, as a substitute for dividends, and increasing earnings per share. These theories are tested by examining the treasury stock transactions from 2016 to 2021 of the 100 largest companies in the S&P 500. Although each of these motivations has merit, the results show that none provides a dominant cause for the purchase of treasury shares. An alternative cause is proposed.