There are a number of legitimate reasons for an issuer of
publicly traded equity securities to repurchase those securities.
Issuers may, for example, believe that a stock repurchase program
is preferable to paying dividends as a way to return investor
capital; or issuers may desire to have additional shares available
for employee stock ownership plans.
Alternatively, issuers may choose to reduce their outstanding
capital stock after selling an operating division or subsidiary for
cash. Investors may also benefit from issuer repurchases in the
form of additional liquidity in the marketplace. Because issuer
repurchases can affect the market price of its outstanding stock,
however, an issuer may elect to repurchase its stock to
artificially boost the stock price. Even where an issuer has a bona
fide business purpose for repurchasing its stock, it may be subject
to claims that it did so in a manipulative manner with the
intention to boost the market price of the stock.
