Companies use share repurchases to reward shareholders when they have excess cash on hand
and few good investment opportunities to invest capital at a high rate of return. A buyback
reduces the number of shares outstanding, thereby increasing potential earnings per share (EPS)
and signaling management's pride in the company's prospects for long-term growth (Krishna,
2024). Some studies posit that buybacks under leverage will have a profitable effect on the firm
by balancing its capital structure and improving its financial performance (Pae & Baek, 2022).
Furthermore, buybacks may be linked to stock option exercises to the extent that such buybacks
align managerial incentives with creating shareholder value, especially for technology firms
(Hurtt et al., 2008). Another way buybacks can be associated with stock option exercises is
aligning managerial incentives with shareholder value creation, especially in technology firms
(Hurtt et al., 2008).
Apple Inc. (AAPL) provides a clear example of this strategy in action. In May 2024, Apple
announced a $110 billion stock repurchase plan, the most significant buyback in U.S. corporate
history, despite experiencing a 4.3% year-over-year revenue decline. This decision highlights the
company´s strong cash position and commitment to rewarding shareholders (Thaler, 2024;
Reinicke, 2024). Apple´s management has stressed that returning capital to shareholders is a key
consideration in its capital allocation strategy. The company stated in its Form 10-K 2021, "We
consider the return of capital to shareholders an important element within our overall capital
allocation strategy" (Apple Inc., 2021).
This decision highlights the company´s strong cash position and commitment to rewarding
shareholders (Thaler, 2024; Reinicke, 2024). Apple´s management has stressed that returning
capital to shareholders is a key consideration in its capital allocation strategy. The company
stated in its Form 10-K 2021, "We consider the return of capital to shareholders an important
element within our overall capital allocation strategy" (Apple Inc., 2021).
References
Apple Inc. (2021). Form 10-K for the fiscal year ended September 25, 2021. Retrieved from
https://www.sec.gov/Archives/edgar/data/320193/000032019321000105/aapl-20210925.htm
Reinicke, C. (2024). Apple's $110 billion stock buyback plan is largest in U.S. history.
Bloomberg. Retrieved from https://www.bloomberg.com/news/articles/2024-05-02/apple-s-110-
billion-stock-buyback-plan-is-largest-in-us-history
Hurtt, D. N., Kreuze, J. G., & Langsam, S. A. (2008). Stock buybacks and their association with
stock options exercised in the IT industry. American Journal of Business, 23(1), 13–22.
https://doi.org/10.1108/19355181200800001
Krishna, M. (2024). Apple beat its own record with a blockbuster buyback. Investopedia.
Retrieved from https://www.investopedia.com/apple-beat-its-own-record-with-blockbuster-
buyback-plan-8643249
