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Essay / Research Paper Abstract
This 4-page paper provides an explanation of treasury stock and why companies participate in common stock buybacks. Bibliography lists 5 sources.
Page Count:
4 pages (~225 words per page)
File: AS43_MTtreastoc.doc
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Unformatted sample text from the term paper:
the market in an attempt to raise more capital. Depending on the price of the stock at issue, these shares raise enough capital for the company to do what it
needs to do (such as pay off debt or plow the capital into new projects). What the company has done is sold its treasury stock, or treasury shares, as theyre
sometimes called. Treasury stock is a portion of shares that a company holds back in its own treasury (Treasury Stock). Sometimes its created
when shares are initially issued; or sometimes theyre created when a company conducts a share buyback (and purchases the shares on the open market) (Treasury Stock).
None of the shares, in other words, are issued to the public but rather, are held back in reserve (Treasury Stock). Treasury stock is kept for
a variety of reasons - one, as mentioned above, involves a capital raise. Another reason is to keep a controlling interest of the company in the treasury, which can help
prevent hostile takeovers (Treasury Stock). The question we need to ask ourselves here is not so much why a company keeps treasury stock,
but why it might buy back its own shares outstanding in the marketplace. The conventional line is that doing so increases shareholder wealth (fewer shares on the market means more
money for shareholders who still have shares). This is true, to an extent. But stock buybacks, unlike dividends that are also used to boost shareholder wealth, dont require the same
level of commitment on the part of management to return profit to shareholders (Siegel 52). Buyback announcements many times are trial balloons that are floated out there to see how
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