tag:blogger.com,1999:blog-8152901575140311047.post8726609489033443555..comments2024-03-28T08:49:51.975-04:00Comments on Musings on Markets: January 2019 Data Update 8: Dividends and Buybacks - Fact and FictionAswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-8152901575140311047.post-84204140618891778042019-03-01T23:00:18.146-05:002019-03-01T23:00:18.146-05:00Very thorough and well researched article. I funda... Very thorough and well researched article. I fundamentally agree that buybacks are a symptom, but I would not attribute the symptom only to changes in the global economy. This alone would not explain why some companies have gone as far as leveraging in order to fund more share buybacks. So it has not been only free cash which has been returned to shareholders, but a little extra also coming from leverage. It is noticeable that corporate debt has skyrocketed while all these share were being bought back. The driver of this behavior has not been simple lack of solid investment opportunities, but I believe an active effort to target Earnings Per Share. Having worked for large companies, I can attest to the CEOs obsession with meeting Wall Street's expectations.<br /><br />I think the analysis could be complemented with elements of behavioral finance related to the 'financialization' of the economy. Most CEOs in these days are in fact obsessed with meeting Wall Street's analysts' expectations, and are obsessed with stock performance (since they also get a lot of their pay in stock). Perhaps it is also time to admit that the impact of the financial view of the economy has gone astray. One has to wonder how the behavior of these companies would change if the stock market was abolished for a few years. AMhttps://www.blogger.com/profile/05972255665912176572noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-83968073646607307522019-03-01T22:59:26.910-05:002019-03-01T22:59:26.910-05:00Very thorough and well researched article. I funda... Very thorough and well researched article. I fundamentally agree that buybacks are a symptom, but I would not attribute the symptom only to changes in the global economy. This alone would not explain why some companies have gone as far as leveraging in order to fund more share buybacks. So it has not been only free cash which has been returned to shareholders, but a little extra also coming from leverage. It is noticeable that corporate debt has skyrocketed while all these share were being bought back. The driver of this behavior has not been simple lack of solid investment opportunities, but I believe an active effort to target Earnings Per Share. Having worked for large companies, I can attest to the CEOs obsession with meeting Wall Street's expectations.<br /><br />I think the analysis could be complemented with elements of behavioral finance related to the 'financialization' of the economy. Most CEOs in these days are in fact obsessed with meeting Wall Street's analysts' expectations, and are obsessed with stock performance (since they also get a lot of their pay in stock). Perhaps it is also time to admit that the impact of the financial view of the economy has gone astray. One has to wonder how the behavior of these companies would change if the stock market was abolished for a few years. AMhttps://www.blogger.com/profile/05972255665912176572noreply@blogger.com