Short-Termism and Capital Flows

40 Pages Posted: 10 Jan 2017 Last revised: 25 Sep 2018

See all articles by Jesse M. Fried

Jesse M. Fried

Harvard Law School; European Corporate Governance Institute (ECGI)

Charles C. Y. Wang

Harvard Business School

Date Written: September 4, 2018


During the period 2007-2016, S&P 500 firms distributed to shareholders more than $4.2 trillion via stock buybacks and $2.8 trillion via dividends - $7 trillion in total. These shareholder payouts amounted to over 96% of the firms' net income. Academics, corporate lawyers, asset managers, and politicians point to such shareholder-payout figures as compelling evidence that "short-termism" and "quarterly capitalism" are impairing firms' ability to invest, innovate, and provide good wages. We explain why S&P 500 shareholder-payout figures provide a misleadingly incomplete picture of corporate capital flows and the financial capacity of U.S. public firms. Most importantly, they fail to account for offsetting equity issuances by firms. In particular, we explain the importance of accounting for indirect equity issuances, which constitute the majority of total equity issuances in public firms. In addition, S&P 500 firms are not representative of public firms generally as they tend to be older and return more cash to shareholders. We show that, taking into account issuances, net shareholder payouts by all U.S. public firms during the period 2007-2016 were in fact only about $3.33 trillion, 41% of their net income. We also explain that net income is a poor proxy for the amount of capital potentially available for investment, as R&D and other future-oriented expenditures are already deducted in computing it. Our analysis and data can help explain why investment has been increasing and cash balances have been ballooning even though S&P 500 firms appear to be paying out all of their profits to shareholders. In short, S&P 500 shareholder-payout figures are not indicative of actual capital flows in public firms, and thus cannot provide much basis for the claim that short-termism is starving 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

Fried, Jesse M. and Wang, Charles C. Y., Short-Termism and Capital Flows (September 4, 2018). Harvard Business School Accounting & Management Unit Working Paper No. 17-062; European Corporate Governance Institute (ECGI) - Law Working Paper No. 342/2017. Available at SSRN: or

Jesse M. Fried

Harvard Law School ( email )

1575 Massachusetts
Griswold Hall 506
Cambridge, MA 02138
United States
617-384-8158 (Phone)


European Corporate Governance Institute (ECGI) ( email )

B-1050 Brussels

Charles C. Y. Wang (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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