The Quest for Shareholder Value : Stock Repurchases in the US Economy

During the 1980s and 1990s the argument that “maximizing share-holder value” results in superior economic performance came to dominate the corporate governance debates. In this paper, I outline the rationale for the shareholder-value perspectives, and show that, rooted in agency theory,it lacks a theory of innovative entreprise. Hence it cannot be used to analyze the conditions under which the stock market supports or undermines the process of value creation. To go beyond agency theory and its shareholder-value perspective, I present a framework for analyzing the functions of the stock market in the business corporation and the influence of these functionson the social conditions of innovative enterprise. I then use this framework to explain why in the United States since 1990s there has been a widespread trend in corporate stock repurchases, including a sharp acceleration in buybacks since 2003. Focusing on a list of the largest corporate repurchasers in the United States, I raise questions concerning the relation as a whole. I conclude with a discussion of why companies do stock repurchases, and in particular whether they can be justified as a contribution to innovative enterprise. I argue that the ultimate justification for stock repurchases is the ideology of “maximizing shareholder value” - an ideology that works to the direct benefit of corporate executives who make corporate ressource allocation decisions and who derive high levels of renumeration from munificient stock option awards.