A company's purchasing of its own previously issued shares on the open market or from others. If a business decreases shareholders' equity through such a move and profit remains unchanged, then earnings per share and return on equity improve. Because of this, investors make strong demands for firms to conduct buybacks, especially for companies with ample cash and deposits. Also, firms rushing to unwind cross-shareholdings with financial institutions repurchase their own shares from these institutions. Stock buybacks were prohibited in Japan because the practice goes against the principle of maintaining capital, but the ban was lifted in 1994. And in 2001, firms were allowed to buy shares freely and hold them as treasury stock. Revisions to the Commercial Code in 2003 let a firm's board of directors freely decide buyback timing and size once the company amends its corporate charter at a general shareholders meeting.
An Issuer will often buy back its outstanding shares in order to reduce the number of shares on the market. Companies typically buyback shares to increase the value of the shares by reducing the supply, or to reduce the possibility of takeover threats.