Short-Termism and Capital Flows

Short-Termism and Capital Flows

Jesse Fried, Charles Wang

Series number :

Serial Number: 
342/2017

Date posted :

January 01 2017

Last revised :

December 03 2018
SSRN Share

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

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.

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