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The whole reason companies go public is to raise capital. Without buybacks and dividends as at least potential future possibilities this would be hampered. Add

The whole reason companies go public is to raise capital. Without buybacks and dividends as at least potential future possibilities this would be hampered. Additionally, companies guarding mountains of cash is problematic. Sometimes companies can invest cash more wisely than the market. Often times however this is not the case. I agree short termism is a problem, but I'm not convinced of any particular solution here. I'll also point out that sometimes when the market is too short termist private equity can come in and revalue the company to free it from those constraints as in the case of Dell.

mattmanser 9y ago
You're pretty much begging the question, you're saying that they can only raise capital if they're willing to pillage themselves. Another consequence was that instead of investing on new cars, GM's leadership was incentivized to focus on buybacks because of compensation schemes. EDIT: The more I think about this, the more obviously broken it is. Capital markets are lauded for being able to help companies grow. You're saying that capital is the most important thing and companies should focus on returning capital instead of themselves.
- andrewvc 9y ago
  Why should GM invest in new cars as opposed to returning capital to investors who can perhaps allocate it more efficiently? Why should I believe they can do a better job than anyone else? This is a long-standing debate over who should allocate capital. I don't think there's one exact answer. Clearly some companies, like AOL were terrible at reinvesting money, they tried and tried but wound up blowing tons of cash on worthless companies. Other companies, like say Facebook were able to make smart investments like buying Instagram. Clearly investors price stock based on whether the company can make smart investments in its own future, which is why AOL nosedived and Facebook rose. The market isn't always right but I'm not convinced that an alternative would be better
  - mattmanser 9y ago
    Pretty much the obvious answer, because the company died? All you're doing is making Ha-Joon Chang's point for him! Having not personally read "23 Things They Don't Tell You About Capitalism", I assume the argument is that companies should grow, not chase investor returns. Thus they contribute to the society and the eco-system of suppliers and employees they support. Investors don't depend on them, they can just move their capital elsewhere. One might say that it's called "investing", not "extracting". If you want to move your capital elsewhere, because you think you can get better growth elsewhere, fab! That's capitalism at work and easy to do, sell your shares. Which reminds me of all the films in the 80s about the company raiders (e.g. Pretty Woman) being bought and broken up, the pieces were worth more than the whole? Destroying companies for short-term profit. I have no idea whether it's overall a net loss for an economy, but it destroys more than just the one company.
- deleted 9y ago
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mattmanser 9y ago

You're pretty much begging the question, you're saying that they can only raise capital if they're willing to pillage themselves. Another consequence was that instead of investing on new cars, GM's leadership was incentivized to focus on buybacks because of compensation schemes. EDIT: The more I think about this, the more obviously broken it is. Capital markets are lauded for being able to help companies grow. You're saying that capital is the most important thing and companies should focus on returning capital instead of themselves.

andrewvc 9y ago
Why should GM invest in new cars as opposed to returning capital to investors who can perhaps allocate it more efficiently? Why should I believe they can do a better job than anyone else? This is a long-standing debate over who should allocate capital. I don't think there's one exact answer. Clearly some companies, like AOL were terrible at reinvesting money, they tried and tried but wound up blowing tons of cash on worthless companies. Other companies, like say Facebook were able to make smart investments like buying Instagram. Clearly investors price stock based on whether the company can make smart investments in its own future, which is why AOL nosedived and Facebook rose. The market isn't always right but I'm not convinced that an alternative would be better
- mattmanser 9y ago
  Pretty much the obvious answer, because the company died? All you're doing is making Ha-Joon Chang's point for him! Having not personally read "23 Things They Don't Tell You About Capitalism", I assume the argument is that companies should grow, not chase investor returns. Thus they contribute to the society and the eco-system of suppliers and employees they support. Investors don't depend on them, they can just move their capital elsewhere. One might say that it's called "investing", not "extracting". If you want to move your capital elsewhere, because you think you can get better growth elsewhere, fab! That's capitalism at work and easy to do, sell your shares. Which reminds me of all the films in the 80s about the company raiders (e.g. Pretty Woman) being bought and broken up, the pieces were worth more than the whole? Destroying companies for short-term profit. I have no idea whether it's overall a net loss for an economy, but it destroys more than just the one company.
deleted 9y ago
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