In the last ten years, US companies have taken around a quarter of their own shares from the market
The massively reduced equity base has made the US companies not only very vulnerable, but should also massively undermine the artistic competitive ability of the United States. Benefits from this once again the management.
While the world’s lead to low key interest rates and the LAXE regulation are considered the most important reason for the current financial crisis, William Lazonick offers the CEO of the Center for Industrial Competitiveness of the Lowell University in Massachusetts, now another mosaic stone, which paved the path into the crisis was allowed: the overriding purchase of own shares through bored companies.
In a businessweek article, Lazonick is attracting balance of the stock budgies of recent years and comes on quite amazing sums. Accordingly, 438 of theP 500 listed large bors-offered US companies from 1997 to 2008 to own shares from the market and spent around 2.4 trillion dollars — in case of a market capitalization of the ten trillion for the entire SP 500.
In the boom year 2007 alone, when corporate profits had risen to unprecedented high so far, they turned on the record amount of $ 1.2 billion on average, which has met about 90 percent of their total profits. Only in 2008, when many companies were already confronted with serious liquidity ies, the jerk buying was back, but much less strong than the profits, so that in the previous year, they already accounted for 2.8 times the profits.
Such back purchase are greeted throughout by increasing the "Share-Holder Value" and even by macroeconomic positive effects. Thus, the additional demand and the fact that the corporate profits will now distribute less shares, the share price. It is also a proof of the confidence of management in its own company and make it clear that the current share price is lower than the actual value of the company. Give the rules of excess money back, then it is called. If the shares are actually rising, all are happy: the actionaries can reduce this wax growth and thus ensure sales in trade and economic growth; The pension funds were also written to profits and could fulfill their obligations, which benefits the entire society.
From the point of view of long-term oriented actions, the benefits of the course avanations were allowed to be pulverized in the face of course in the crisis in the crisis. As a winner, only the speculators remain insofar, so those investors who have bought the shares only because they expected short-term price increases that they wanted to take advantage of.
If the companies had to re-establish the back-bought shares with the now higher courses again and the additional funds can be used productively, the stock pricing purchased at least from the point of view of the company were economically rational, which would otherwise only be invested if the money in the company did not make sense be able to. However, according to Lazonick, it is absolutely unaffected that the managers realize the profits resulting from the price increases for their companies. That happens at best if the retained own shares can be used as a means of use as a means of use.
Stock shopping are made at cost of productive investments
It is clear who mostly benefits: top management that regularly decides on the implementation of such jolt purchases and, thanks to stock options, is mostly widely involved in the short-term price increases — and typically to realize these profits also to realize at times.
From the macroeconomic view, according to Lazonick, on the other hand, it should be amed that the stock budgets are made at cost of productive investments. Accordingly, procuring and art growth decrease, which makes it particularly serious that massive random purchases are the rule, especially in strongly innovation dependencies such as energy, technology and pharma. So have ExxonMobile, which on 30 June 2009 on a market capitalization of around 336.5 billion. USD amounted to around 144 billion between 2000 and 2008. USD for own shares ied and another eight billion alone in the first quarter of 2009, which made the global energy company for the backlog record holder. Also in the highest top 10, Microsoft, IBM, Cisco Systems, Intel and Hewlett-Packard, who have all since 2000 have spent more than their own shares than for research and development. That is also at Pfizer, Johnson Johnson, Amgen and Merck the case, which had simultaneously ruled in travers against a regulation of US medicine prices.
Although even under extreme market dogymers, it is undisputed that a market price formation is problematic if the consumers can not decide how they can not decide on medicines, whether they buy them or not. The pharmaceutical companies argue in contrast to achieving a beneficial profit in regulated prices, to finance their research. However, for example, that has actually invested in a research-intensive and rather profitable biotechnology company Amgen since 2000 more than 115 percent of its net profit in its own shares, which should take the wind from the sails to this argument.
Also noteworthy are the sums that have just made companies who have failed in the crisis, previously ied for own shares. For example, General Motors had the 20.4 billion spent between 1986 and 2002 for own shares instead, instead, invested in safe government bonds, it has been equipped in 2009 over additional 35 billion, which had probably even sufficient to come through the crisis. Also, eight of the large US banks, all of which had to be recapitalized by the state, have 182 billion from 2000 to 2007. USD for own shares — which allowed the state aids you received overall significant.
Since the low interest rate level has published credit financing for companies against the financing by shares, Lazonick may now overhear the causal influence of the stock budgets on the way to the crisis. The resulting high debt financing of the companies corresponds to the "Leverage", which has moved across almost all conceivable areas in the USA.
Certainly the resulting loss of equity, however, played a populous role in general collapse. Even heavier was allowed to weigh in the long term for the US that the Union investments were shared by the US heavily in their ability to reduce the trade deficit by increasing exports. Ultimately, however, the projection could be consumed, which the US economy continues to occupy in some economic areas.