Short-Termism and Capital Flows
Review of Corporate Finance Studies, Forthcoming.
European Corporate Governance Institute (ECGI) - Law Working Paper No. 342/2017
Harvard Business School Accounting & Management Unit Working Paper No. 17-062
48 Pages Posted: 10 Jan 2017 Last revised: 25 Nov 2018
Date Written: November 14, 2018
During 2007-2016, S&P 500 firms distributed to shareholders $7 trillion via buybacks and dividends, over 96% of their aggregate net income, prompting claims that "short-termism" is impairing firms' ability to invest and innovate. We show that, when taking into account both direct and indirect equity issuances, net shareholder payouts by all public firms during this period were only 41% of net income. And, in fact, during this decade investment increased substantially while cash balances ballooned. In short, S&P 500 shareholder-payout figures cannot provide much basis for the notion that short-termism has been depriving public firms of needed capital.
Keywords: short-termism; quarterly capitalism; corporate governance; share buybacks; open market repurchases; dividends; equity issuances; seasoned equity offerings; equity compensation; acquisitions; payout policy; capital flows; capital distribution
JEL Classification: G14, G32, K22
Suggested Citation: Suggested Citation