4 ms·

> In theory (and usually in practice even more so), buying back the $1bln increases the value of ongoing remaining stock holdings by $1bln. That's absolutely w

by kgwgk 4y ago

> In theory (and usually in practice even more so), buying back the $1bln increases the value of ongoing remaining stock holdings by $1bln. That's absolutely wrong. (If that's - in some sense - correct, it will also be true that distributing $1bn in dividends the company increases the value of ongoing remaining stock holdings by $1bln.) Anyway, the question was if the tax treatment of dividends relative to capital gains gives investors a strong incentive to prefer 'growth' companies that do not ever return capital to the owners rather than 'not-so-much-growth' companies that pass a substantial part of their cashflows ot the owners. And the answer is 'not as much as you implied' because there are also companies that distribute money using a mechanism that is not affected by the tax treatment of dividends so investors can avoid dividends without being restricted to 'growth only' companies.

lazide 4y ago
Mind providing some references as to how removing $1bln of shares from the market doesn’t increase every remaining shareholders value by $1bln, assuming market cap stays the same (which it generally does, independent of another variable)? Even if the shares are not destroyed, the assets of the company now include those $1bln shares and are non-voting. Every other shareholder now has their actual voting power/control/share increase proportionally. Take the hypothetical case where all but 1 share was bought back by the company. The owner of the one remaining non-bought back share is now the controlling shareholder and that share should be valued at the prior market value of all public shares, modulo what everyone things about it’s new future in such a scenario. Dividends do not work the same way, and would not do the same thing - though for a value company, share price generally is based off the dividend payment history over a period of time, and expected likelihood of that trend continuing. So missing a dividend would definitely have an impact. It isn’t quite like a bond, but many people try to use value companies that pay dividends for similar purposes - cash flow. If a dividend isn’t paid, theoretically you’d expect the money not spent to be an asset on the books and increase the overall share price proportionally, modulo the markets valuation of such a thing. But it still isn’t cash in anyone else’s bank account, and the companies management could just spend it on something else at any time.
- kgwgk 4y ago
  > Mind providing some references as to how removing $1bln of shares from the market doesn’t increase every remaining shareholders value by $1bln, assuming market cap stays the same (which it generally does, independent of another variable)? The market cap definitely doesn't stay the same. When $1bn goes out the door (either as a distribution of dividends or to repurchase shares) the value of the company goes down quite a lot instantaneously. [Maybe somewhat less than $1bn though, as cash on hand may be discounted due to the risk of mismanagement, the tax on the dividend is considered, etc.] The market value adjusts instantaneously when a dividend is distributed as it's known in advance, in the case of buybacks the company only discloses them from time to time but the adjustment to the fundamental change in value happens eventually. Can you provide a single reference that says that the value of a company doesn't goes down when it gives money away? > Every other shareholder now has their actual voting power/control/share increase proportionally. All the shareholders together own a company that is worth less than before - the only difference is that it has less dollars in it's current account. [That is, all the remaining shareholders. When all the previous shareholders are considered they jointly own a company that is worth less than before and a bag of money - their aggregate wealth is essentially unchanged as discussed above.] > Take the hypothetical case where all but 1 share was bought back by the company. The owner of the one remaining non-bought back share is now the controlling shareholder and that share should be valued at the prior market value of all public shares, modulo what everyone things about it’s new future in such a scenario. Ok, let's assume that I have an Intel share and everyone else agrees to sell their shares to the company at the current price of $40 and the company can somehow get the $160bn financing required to buy those shares. Then my share is worth $160bn? Yesterday, all the shareholders together had a company worth $160bn. If today I own a company worth $160bn and the other shareholders have $160bn in cash, where do you think the extra $160bn came from? A simpler case: Alice and Bob are equal shareholders in a company. The company has $10mn in cash. They reach an agreement about the valuation of the company being $20mn. The company uses the $10mn in cash to buy back Alice's interest. [I said the company has $10mn in cash for simplicity. It could have more or have less and take a loan for the rest without affecting the argument.] Now Bob is the sole owner of the company. How much is the company worth? Do you really think that the company is still worth $20mn? What if I'm a sole owner and sell half of my shares to the company? Has my wealth doubled? Can I have the (half) cake and eat it too? Can I keep selling half my interest to multiply my wealth?

by kgwgk 4y ago

lazide 4y ago

Mind providing some references as to how removing $1bln of shares from the market doesn’t increase every remaining shareholders value by $1bln, assuming market cap stays the same (which it generally does, independent of another variable)? Even if the shares are not destroyed, the assets of the company now include those $1bln shares and are non-voting. Every other shareholder now has their actual voting power/control/share increase proportionally. Take the hypothetical case where all but 1 share was bought back by the company. The owner of the one remaining non-bought back share is now the controlling shareholder and that share should be valued at the prior market value of all public shares, modulo what everyone things about it’s new future in such a scenario. Dividends do not work the same way, and would not do the same thing - though for a value company, share price generally is based off the dividend payment history over a period of time, and expected likelihood of that trend continuing. So missing a dividend would definitely have an impact. It isn’t quite like a bond, but many people try to use value companies that pay dividends for similar purposes - cash flow. If a dividend isn’t paid, theoretically you’d expect the money not spent to be an asset on the books and increase the overall share price proportionally, modulo the markets valuation of such a thing. But it still isn’t cash in anyone else’s bank account, and the companies management could just spend it on something else at any time.

kgwgk 4y ago
> Mind providing some references as to how removing $1bln of shares from the market doesn’t increase every remaining shareholders value by $1bln, assuming market cap stays the same (which it generally does, independent of another variable)? The market cap definitely doesn't stay the same. When $1bn goes out the door (either as a distribution of dividends or to repurchase shares) the value of the company goes down quite a lot instantaneously. [Maybe somewhat less than $1bn though, as cash on hand may be discounted due to the risk of mismanagement, the tax on the dividend is considered, etc.] The market value adjusts instantaneously when a dividend is distributed as it's known in advance, in the case of buybacks the company only discloses them from time to time but the adjustment to the fundamental change in value happens eventually. Can you provide a single reference that says that the value of a company doesn't goes down when it gives money away? > Every other shareholder now has their actual voting power/control/share increase proportionally. All the shareholders together own a company that is worth less than before - the only difference is that it has less dollars in it's current account. [That is, all the remaining shareholders. When all the previous shareholders are considered they jointly own a company that is worth less than before and a bag of money - their aggregate wealth is essentially unchanged as discussed above.] > Take the hypothetical case where all but 1 share was bought back by the company. The owner of the one remaining non-bought back share is now the controlling shareholder and that share should be valued at the prior market value of all public shares, modulo what everyone things about it’s new future in such a scenario. Ok, let's assume that I have an Intel share and everyone else agrees to sell their shares to the company at the current price of $40 and the company can somehow get the $160bn financing required to buy those shares. Then my share is worth $160bn? Yesterday, all the shareholders together had a company worth $160bn. If today I own a company worth $160bn and the other shareholders have $160bn in cash, where do you think the extra $160bn came from? A simpler case: Alice and Bob are equal shareholders in a company. The company has $10mn in cash. They reach an agreement about the valuation of the company being $20mn. The company uses the $10mn in cash to buy back Alice's interest. [I said the company has $10mn in cash for simplicity. It could have more or have less and take a loan for the rest without affecting the argument.] Now Bob is the sole owner of the company. How much is the company worth? Do you really think that the company is still worth $20mn? What if I'm a sole owner and sell half of my shares to the company? Has my wealth doubled? Can I have the (half) cake and eat it too? Can I keep selling half my interest to multiply my wealth?