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by clairity 2090 days ago
> "I don't see how workers are getting screwed."

FTFA:

> "Pressure to maintain corporate payouts may also be responsible for larger-than-necessary layoffs during the COVID-19 crisis." (only common employees get laid off)

> "...reduce or postpone investment spending for new projects, research and development, advertising and maintenance" (less money to employees, more to executives)

> "Buybacks also tend to raise corporate indebtedness and leverage, which can increase bankruptcies..." (borne by common employees, not executives)

also, employees other than executives cannot execute this sort of pump'n'dump.

and that's just the immediately obvious stuff.
1 comments
smallgovt 2089 days ago
All of these arguments apply to dividends as well as share buybacks. And, therefore, do not support a shift back to dividends.

If you compare the dividend yield of the s&p500 from 1980 to today, it dropped by around 3%. Based on today’s market cap, that 3% equates to around $900b. In the last year, we’ve had around $700b in share buybacks for s&p 500 companies. These data suggest that the shift to buybacks did not negatively impact liquidity, r&d, or overall ability to maintain employment levels.

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clairity 2089 days ago
> "All of these arguments apply to dividends as well as share buybacks."

no, adverse incentives (like here, where buybacks preferentially benefit executives) create moral hazards, which economic research has shown time and again. there's even a specific name for this particular issue: the principal-agent problem[0].

in the idealized case, you don't return money to investors if you have positive npv projects on the table (meaning more capital and less risk directed toward common employees as a side effect), but you will if you can enrich yourself regardless of those projects. dividends don't create these perverse incentives but buybacks in the current environment do.

[0]: https://wikipedia.org/wiki/Principal%E2%80%93agent_problem

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smallgovt 2089 days ago
The argument you’re now outlining is not a subset of the arguments you previously listed (and I was referencing).

I agree buybacks create adverse incentives. As I’ve stated elsewhere in this thread, the damages of these adverse incentives are outweighed by the tax advantages buybacks have over dividends.

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clairity 2089 days ago
to be clear: the tax advantages are the adverse incentives.
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