Short-Termism, Shareholder Payouts, and Investment in the EU

Short-Termism, Shareholder Payouts, and Investment in the EU

Jesse Fried, Charles Wang

Series number :

Serial Number: 
544/2020

Date posted :

October 16 2020

Last revised :

October 16 2020
SSRN Share

Keywords

  • short-termism • 
  • quarterly capitalism • 
  • Corporate governance • 
  • EU • 
  • buybacks • 
  • Repurchases • 
  • dividends • 
  • equity issuances • 
  • equity compensation • 
  • acquisitions • 
  • payout policy • 
  • capital flows • 
  • capital distribution • 
  • CAPEX • 
  • R&D • 
  • investment • 
  • innovation

Investor-driven “short-termism” is said to harm EU public firms’ ability to invest for the long term, prompting calls for the EU to better insulate managers from shareholder pressure.

But the evidence offered—in the form of rising levels of repurchases and dividends—is incomplete and misleading, as it ignores large offsetting equity issuances that move capital from investors to EU firms. We show that net shareholder payouts have been moderate, that both investment levels and investment intensity have been rising, and that cash balances have increased. In sum, the data provide little basis for the view that short-termism in the EU warrants corporate governance reforms.

Authors