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Billett, Xue Comment On Stock Buyback Trend

Companies are reeling in their shares hand over fist these days. First-quarter corporate results have brought a new batch of buyback programs -- and much food for thought. In the past week alone, BASF, a German chemicals group, has announced a new 1.5 billion Eurodollar share buyback, on top of the 1 billion Eurodollar program it has just completed. Citigroup and Merrill Lynch, two giants of American finance, have unveiled repurchase plans worth $15 billion and $4 billion respectively. Kerr-McGee, an American oil company, said it would buy back up to $4 billion-worth of its shares. BP, a British oil giant, Franco-Belgian bank Dexia and Germany's Deutsche Börse are also buying back shares. One benefit for companies that buy back shares is that they are likely to be able to raise equity finance later more cheaply, say MATTHEW BILLETT and HUI XUE from the University of Iowa. This is so not only because repurchasing shares is likely to raise their price; their shares also resist better the normal downdraft that accompanies a new share issue.

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