• Acquisition of treasury stock can be used as a tactic to push up the market price of a company’s stock in
order to please the remaining stockholders. Usually, a large scale repurchase (such as that made by Viacom)
indicates that management believes the stock is undervalued at its current market price. Buying treasury
stock reduces the supply of shares in the market and, according to economic theory, forces the price to rise.
In addition, because of the announcement of the repurchase, outside investors often rush in to buy the stock
ahead of the expected price increase. The supply of shares is decreased while demand for shares is
increased. Stock price should go up. Not surprisingly, current stockholders often applaud the decision to
buy treasury shares as they anticipate a jump in their investment values.