Tesco
Corporate Buybacks and Capital Investment
Article

Corporate Buybacks and Capital Investment

An International Perspective

Joseph W. Gruber and Steven B. Kamin
Federal Reserve Board, 2017
Read the article

Read or listen offline

automatisch generiertes Audio
  • 0.5×
  • 0.75×
  • 1×
  • 1.25×
  • 1.5×
  • 1.75×
1×
automatisch generiertes Audio

Editorial Rating

9

Qualities

  • Analytical
  • Innovative
  • Eye Opening

Recommendation

Executives of many US public companies are paying their investors handsome returns in the form of share buybacks and dividend outlays, now at record high levels relative to GDP. At the same time, many firms have reduced their capital investment. This scenario is potentially worrisome for overall economic growth, particularly as it also manifests across a number of OECD nations. Economists Joseph W. Gruber and Steven B. Kamin assess the relationship, causality and correlation between returns to shareholders and corporate investment allocations, and come up with some intriguing conclusions. getAbstract recommends this expert report to executives and investors. 

Take-Aways

  • Today, the ratio of the sum of corporate buybacks and shareholder dividends to GDP stands at a “historically elevated” level in the United States.
  • Concurrently, company executives have pulled back on capital investment in plants, equipment, projects and other potential opportunities.
  • A correlation between these two variables would present a disturbing trend, as executives deliberately deploying more company capital to shareholders would mean fewer long-run commitments to spurring profitability and economic growth.

About the Authors

Joseph W. Gruber and Steven B. Kamin are economists with the Board of Governors of the Federal Reserve System.

Comment on this summary or Diskussion beginnen