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For the last ~10 years yes. Almost all big companies that are profitable do it. This is actually a major problem for innovation and investments in general, the

For the last ~10 years yes. Almost all big companies that are profitable do it. This is actually a major problem for innovation and investments in general, there are lots of economist who talk about this issue: Mariana Mazzucato has some very convincing arguments for public investments based, among other things, on this very problem. (neo-liberal) Governments lower corporate taxes to boost corporate profit in the (unfunded) hope that this will drive massive investments in innovation and create job, and bigCo just buy their stock back because it is by far the most profitable short-term for their shareholders and their executives. Major reason is : they don't know what else to do. There was a very cool article on HN about the specific Boeing case that went over how it changed in the last 20y to go from engineering company to finance-driven company

chii 7y ago
> Major reason is : they don't know what else to do no, they just don't like the risk of innovation. A share buy-back program is guarenteed to increase the share price, which is benefitial to executives who hold their bonuses in shares (and share holders would also like it). Doing innovation comes with risks - which may or may not pan out. If it doesn't pan out, the executives would get chewed for it, and if it does pan out it is unlikely to pay off for a long time (in terms of bonuses - at least, not within their tenure). Gov'ts should just invest in startups, rather than give tax breaks. Invest in up and coming students who show promise, and get to claim a share of their innovation as taxes as well! And if it fails, it fails - the gov't doesn't need to be profitable.
- throw0101a 7y ago
  Yes, it is prudent to invest capital back into the company (R&D), but it may not be the best use of money or have the best ROI. It should also be noted that share buy-backs are also useful to shareholders as an alternative to dividends. Whereas a dividend creates a tax event that an investor may nor may not welcome, the same investor can choose to sell their stock or hang on to it. Financially speaking, if you start with $1000 in stocks, it does not matter whether you end up with $1000 in stock and $100 in cash from dividends, or $1100 in stocks (from the price going up). * https://www.youtube.com/watch?v=UpXI_Vd51dA https://www.youtube.com/watch?v=UpXI_Vd51dA And yet companies that payout dividends are not vilified the same was as buy-back companies--in fact dividend payers are lauded in an almost fetishist way due to human psychology: * https://en.wikipedia.org/wiki/Mental_accounting https://en.wikipedia.org/wiki/Mental_accounting
  - chii 7y ago
    the issue here is that gov't lower corp taxes in the hopes that the money gets put into R&D. Instead, it goes into share buyback schemes. Instead, gov't should use the taxes (rather than returning it to corps) and pay startups for innovation, rather than hope companies use it on R&D.
    - throw0101a 7y ago
      > the issue here is that gov't lower corp taxes in the hopes that ... This is what the GOP said was the reason for the tax cut. This is what the GOP has been saying since 1980 is the reason for the tax cuts. Given this has never worked for several decades, do you think the (non-naive) members of the GOP actually believe this is the reason for the tax cuts? Or is it simply to give their plutocrat supporters what they want?
  - hylaride 7y ago
    Financially speaking, if you start with $1000 in stocks, it does not matter whether you end up with $1000 in stock and $100 in cash from dividends, or $1100 in stocks (from the price going up). It can if capital gains are taxed lower than dividends, which is the case in much of the world. *edit copy/pasted the quote wrong
- short_sells_poo 7y ago
  > Doing innovation comes with risks - which may or may not pan out. If it doesn't pan out, the executives would get chewed for it, and if it does pan out it is unlikely to pay off for a long time (in terms of bonuses - at least, not within their tenure). You really nailed the problem. It is faced by all companies with sizeable middle management (read, all companies above a certain size). Let's look at the incentives. A middle manager with an entrepreneurial spirit who tries to enact change, try new ideas and stay ahead of the curve has a chance to make it to the top, provided they have allies already at the top who are also willing to bet their reputation on the underling and also that none of the bets backfire badly. On the other hand, let's take a pointy haired boss type middle manager who does jack-all, avoids responsibility where possible and therefore by definition they also don't participitate in any cockups. They sort of coast by, being too average to notice either for outperformance or underperformance. After 20 years at the company, they retire. Which of these two are going to be the majority? In my experience, the latter outweighs the former by a large margin. Being in the latter, you don't have to do anything, just stay away from trouble. Squash any ambitious projects your group comes up with, maintain some token efforts that look good on quarterly presentations, but keep it all fairly toothless. Over time they get entrenched in the company and whether consciously or not, they ensure that only similarly minded people are promoted to middle management, since anyone more ambitious is a direct threat. None of these people are individually evil, and they perhaps aren't even consciously impeding the company. They become a product of the environment. A natural selection of sorts.
Mvandenbergh 7y ago
Mazzucato is brilliant and well worth reading but I'm clear why share buy-backs are any different than dividends from the point of view of balancing shareholder rewards vs reinvestment. The difference is in taxability but that is a separate question.

chii 7y ago

> Major reason is : they don't know what else to do no, they just don't like the risk of innovation. A share buy-back program is guarenteed to increase the share price, which is benefitial to executives who hold their bonuses in shares (and share holders would also like it). Doing innovation comes with risks - which may or may not pan out. If it doesn't pan out, the executives would get chewed for it, and if it does pan out it is unlikely to pay off for a long time (in terms of bonuses - at least, not within their tenure). Gov'ts should just invest in startups, rather than give tax breaks. Invest in up and coming students who show promise, and get to claim a share of their innovation as taxes as well! And if it fails, it fails - the gov't doesn't need to be profitable.

throw0101a 7y ago
Yes, it is prudent to invest capital back into the company (R&D), but it may not be the best use of money or have the best ROI. It should also be noted that share buy-backs are also useful to shareholders as an alternative to dividends. Whereas a dividend creates a tax event that an investor may nor may not welcome, the same investor can choose to sell their stock or hang on to it. Financially speaking, if you start with $1000 in stocks, it does not matter whether you end up with $1000 in stock and $100 in cash from dividends, or $1100 in stocks (from the price going up). * https://www.youtube.com/watch?v=UpXI_Vd51dA https://www.youtube.com/watch?v=UpXI_Vd51dA And yet companies that payout dividends are not vilified the same was as buy-back companies--in fact dividend payers are lauded in an almost fetishist way due to human psychology: * https://en.wikipedia.org/wiki/Mental_accounting https://en.wikipedia.org/wiki/Mental_accounting
- chii 7y ago
  the issue here is that gov't lower corp taxes in the hopes that the money gets put into R&D. Instead, it goes into share buyback schemes. Instead, gov't should use the taxes (rather than returning it to corps) and pay startups for innovation, rather than hope companies use it on R&D.
  - throw0101a 7y ago
    > the issue here is that gov't lower corp taxes in the hopes that ... This is what the GOP said was the reason for the tax cut. This is what the GOP has been saying since 1980 is the reason for the tax cuts. Given this has never worked for several decades, do you think the (non-naive) members of the GOP actually believe this is the reason for the tax cuts? Or is it simply to give their plutocrat supporters what they want?
- hylaride 7y ago
  Financially speaking, if you start with $1000 in stocks, it does not matter whether you end up with $1000 in stock and $100 in cash from dividends, or $1100 in stocks (from the price going up). It can if capital gains are taxed lower than dividends, which is the case in much of the world. *edit copy/pasted the quote wrong
short_sells_poo 7y ago
> Doing innovation comes with risks - which may or may not pan out. If it doesn't pan out, the executives would get chewed for it, and if it does pan out it is unlikely to pay off for a long time (in terms of bonuses - at least, not within their tenure). You really nailed the problem. It is faced by all companies with sizeable middle management (read, all companies above a certain size). Let's look at the incentives. A middle manager with an entrepreneurial spirit who tries to enact change, try new ideas and stay ahead of the curve has a chance to make it to the top, provided they have allies already at the top who are also willing to bet their reputation on the underling and also that none of the bets backfire badly. On the other hand, let's take a pointy haired boss type middle manager who does jack-all, avoids responsibility where possible and therefore by definition they also don't participitate in any cockups. They sort of coast by, being too average to notice either for outperformance or underperformance. After 20 years at the company, they retire. Which of these two are going to be the majority? In my experience, the latter outweighs the former by a large margin. Being in the latter, you don't have to do anything, just stay away from trouble. Squash any ambitious projects your group comes up with, maintain some token efforts that look good on quarterly presentations, but keep it all fairly toothless. Over time they get entrenched in the company and whether consciously or not, they ensure that only similarly minded people are promoted to middle management, since anyone more ambitious is a direct threat. None of these people are individually evil, and they perhaps aren't even consciously impeding the company. They become a product of the environment. A natural selection of sorts.

Mvandenbergh 7y ago

Mazzucato is brilliant and well worth reading but I'm clear why share buy-backs are any different than dividends from the point of view of balancing shareholder rewards vs reinvestment. The difference is in taxability but that is a separate question.