Jesse Fried is the Dane Professor of Law at Harvard Law School and Charles C.Y. Wang is the Glenn and Mary Jane Creamer Associate Professor of Business Administration. This post is based on a recent article authored by Professor Fried and Professor Wang, recently published in the Harvard Business Review.
In an article recently published in the Harvard Business Review, Are Buybacks Really Shortchanging Investment?, Charles Wang and I use data to challenge the widely-held view that U.S. firms distribute too much cash to shareholders through stock buybacks and dividends, reducing these firms’ ability to innovate and invest for the long term.
Payout critics focus on the high volume of dividends and repurchases, often pointing to shareholder payouts routinely exceeding 90% of net income. For example, during the decade 2007-2016, S&P 500 firms distributed $7 trillion to shareholders, mostly via repurchases, totalling 96% of net income. These figures have led Larry Fink, CEO of Blackrock, to warn corporate leaders against seeking to “deliver immediate returns to shareholders, such as buy-backs… while underinvesting in innovation, skilled workforces or essential capital expenditures necessary to sustain long-term growth.” Vice-President Joseph Biden, reportedly mulling a run at the White House in 2020, claimed that the high level of buybacks “has led to significant decline in business investment” with “most of the harm …borne by workers.” Biden’s view is widely shared by prominent politicians in Washington, D.C. Just last week, Senate Democratic Leader Chuck Schumer, who claims buybacks “crowd out investment” that would benefit workers and firms, joined Senator Tammy Baldwin in introducing an amendment to the banking deregulation bill that gives the SEC the authority to block a stock buyback it deems to harm the corporation.
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