What is an ‘Accelerated Share Repurchase – ASR’
An accelerated share repurchase (ASR) is a specific mechanism through which businesses can buy shares of their own stock that are currently in circulation. In most cases, the firm purchases shares of its stock from an investment bank in order to complete the accelerated share buyback (ASR). It is the investment bank’s responsibility to borrow the shares from clients or share lenders and then sell them to the corporation. In order to return the shares to the customer, purchases are made in the open market. These purchases are often made over an extended period of time ranging from one day to many months.
Explaining ‘Accelerated Share Repurchase – ASR’
Accelerated share repurchases allow firms to pass the risk of stock buybacks to an investment bank in exchange for a premium on the shares being purchased. As a result, the firm is able to send a preset amount of money to the investment bank in exchange for its shares of stock on the same day it receives them. ASRs are frequently used to buy back shares at a quicker rate and lower the number of shares that are currently outstanding immediately.
‘Accelerated Share Repurchase – ASR’ FAQ
How does accelerated share repurchase work?
An accelerated share repurchase (ASR) program is a transaction between a reporting organization and an investment bank counterparty in which shares are repurchased at a faster rate. An ASR enables a reporting company to acquire a significant number of common shares at a purchase price set by the average market price over a certain period of time instantly.
Why do firms undertake accelerated share repurchase programs?
The majority of companies who participate in an accelerated share buyback (ASR) program do so because they feel their company shares are undervalued. Furthermore, an ASR program can assist a firm in swiftly consolidating its ownership, so making it easier for the company to make crucial strategic decisions.
How does a bank make money off an accelerated share repurchase?
In an accelerated buyback, the firm purchases its shares from an investment bank, which in turn borrows shares from the company's clients to fund the purchase. As a result of this, the company's earnings grow, and the company's profitability on a per-share basis improves as well.
Further Reading
- Not all buybacks are created equal: The case of accelerated stock repurchases – www.tandfonline.com [PDF]
- Why do firms undertake accelerated share repurchase programs? – papers.ssrn.com [PDF]
- Accelerated share repurchases – www.sciencedirect.com [PDF]
- Do firms manipulate earnings before accelerated share repurchases? – www.sciencedirect.com [PDF]
- The accounting and market consequences of accelerated share repurchases – link.springer.com [PDF]
- Accelerated share repurchases, bonus compensation, and CEO horizons – papers.ssrn.com [PDF]
- Repurchases, reputation, and returns – www.jstor.org [PDF]
- Optimal accelerated share repurchase – papers.ssrn.com [PDF]
- Press Release Management around Accelerated Share Repurchases – www.tandfonline.com [PDF]
