share buyback

[spintron]

When a company does a buyback, the # of shares outstanding gets reduced by the amount of stocks that got bought by the company.

My question is why? can't the company just sell them at some point in the future? Is it there legal binding that they won't or people assume they won't because nobody has done that before in the past?

 

[tomorton]

A share buyback, if accompanied by cancellation of the shares repurchased, supports the share price and increases the dividend and earnings per share. These would not be achieved if the company simply retained the shares for possible later sale. Buybacks are good news if you want to see a share supported at a given price level in the market.

The company could of course but back and cancel shares but then issue new shares later, but that would be a contradictory policy and as a shareholder you might draw negative conclusions about a management that did suchlike.