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Thread: How “Shareholder Value” is Killing Innovation

  1. #21
    Cat-tastic Babba's Avatar
    Jul 2007

    So. Md.
    Quote Originally Posted by kmiller1610 View Post
    The OP is ridiculous. Every company makes its own decisions about when to reinvest and when to payout dividends. If they never reinvest, the problem is bad management.
    But the problem is that they're NOT investing in the business. It's merely shuffling papers around. It doesn't create one job and it makes labor nothing more than a liability. You really should read the article I offer in my post at #13.
    Thanks from labrea

  2. #22
    Sep 2014

    "As a rule, public shareholders do not invest in a corporation’s productive capabilities; they simply buy shares outstanding on the market, hoping to extract value that they have played no role in helping to create"

    Of course, this is false. Stock market, as a secondary market, is very important to make liquid various investments. If one buys stock, the money used to purchase the stock does not get used by the corporation of course. This belies the importance of allowing the chain of previous owners to sell the stock. Now, they have the cash to do other things, and so on to the original who purchaser, who purchased the stock with the knowledge that the asset purchased was relatively capable of supplying liquidity when needed.

    Same could be said for exchanging any asset of course. Stocks simply make the underlying asset infinitely more divisable.

    A company needn't be a joint stock company of course. Run the company to increase its value as much as you can. If you do that, you can sell the company whole. Stocks don't materially change that premise or resukt in a situation where a company's value isn't dependent on the company's ability to innovate. 'FANG' companies suggest exactly that.

    Lazonick seems perturbed by 'buybacks' and indeed if a corporation buys back stock, those fubds cannot be used by the corporation to innovate, but he fails to appreciate the need for resource mobility. The shareholders getting cash use it for other things.
    Last edited by publius3; 2nd August 2017 at 07:13 AM.

  3. #23
    Veteran Member
    Sep 2013

    On a hill
    Seems everyone profits except the employee - you know, the people that actually do the work that justifies the corporations existence.

    …the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees.

    The buyback wave has gotten so big, in fact, that even shareholders—the presumed beneficiaries of all this corporate largesse—are getting worried. “It concerns us that, in the wake of the financial crisis, many companies have shied away from investing in the future growth of their companies,” Laurence Fink, the chairman and CEO of BlackRock, the world’s largest asset manager, wrote in an open letter to corporate America in March. “Too many companies have cut capital expenditure and even increased debt to boost dividends and increase share buybacks.”

    Why are such massive resources being devoted to stock repurchases? Corporate executives give several reasons, which I will discuss later. But none of them has close to the explanatory power of this simple truth: Stock-based instruments make up the majority of their pay, and in the short term buybacks drive up stock prices.
    Thanks from Ćthelfrith

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