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

Author

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  • William Lazonick

Abstract

During the 1980s and 1990s the argument that ?maximizing shareholder value? results in superior economic performance came to dominate the corporate governance debates. In this paper, I outline the rationale for the shareholder-value perspective, and show that, rooted in agency theory, it lacks a theory of innovative enterprise. 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 shareholdervalue perspective, I present a framework for analyzing the functions of the stock market in the business corporation and the influence of these functions on the social conditions of innovative enterprise. I then use this framework to explain why in the United States since the 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 between stock buybacks and value-creating investments in the US economy 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 resource allocation decisions and who derive high levels of remuneration from munificent stock option awards. JEL Codes ? L20.

Suggested Citation

  • William Lazonick, 2008. "The Quest for Shareholder Value: Stock Repurchases in the US Economy," Recherches économiques de Louvain, De Boeck Université, vol. 74(4), pages 479-540.
  • Handle: RePEc:cai:reldbu:rel_744_0479
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    Citations

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    Cited by:

    1. Corinne Perraudin & Héloïse Petit, & Antoine Rebérioux, 2013. "Worker Information and Firm Disclosure Analysis on French Linked Employer–Employee Data," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 52(1), pages 134-161, January.
    2. Perraudin, Corinne & Petit, Héloïse & Rebérioux, Antoine, 2011. "Worker information and firm disclosure: Analysis of French workplace data," CEPREMAP Working Papers (Docweb) 1105, CEPREMAP.
    3. Marie Carpenter & William Lazonick, 2023. "The Pursuit of Shareholder Value: Cisco's Transformation from Innovation to Financialization," Working Papers Series inetwp202, Institute for New Economic Thinking.
    4. Andersson, Tord & Haslam, Colin & Lee, Edward & Katechos, George & Tsitsianis, Nick, 2010. "Corporate strategy financialized: Conjuncture, arbitrage and earnings capacity in the S&P500," Accounting forum, Elsevier, vol. 34(3), pages 211-221.
    5. Haslam, Jim, 2010. "The problematics of financialization: Critical reflections," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 21(7), pages 642-645.
    6. Driver, Ciaran & Guedes, Maria João Coelho, 2012. "Research and development, cash flow, agency and governance: UK large companies," Research Policy, Elsevier, vol. 41(9), pages 1565-1577.
    7. Schuelke-Leech, Beth-Anne, 2018. "A model for understanding the orders of magnitude of disruptive technologies," Technological Forecasting and Social Change, Elsevier, vol. 129(C), pages 261-274.
    8. Gleadle, Pauline & Parris, Stuart & Shipman, Alan & Simonetti, Roberto, 2014. "Restructuring and innovation in pharmaceuticals and biotechs: The impact of financialisation," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 25(1), pages 67-77.
    9. Théo Bourgeron, 2018. "Optimising ‘cash flows’: converting corporate finance to hard currency," Post-Print hal-03165942, HAL.
    10. Christian Weller & Luke Reidenbach, 2011. "On Uneven Ground," Challenge, Taylor & Francis Journals, vol. 54(3), pages 5-37.
    11. Haslam, Colin & Tsitsianis, Nick & Andersson, Tord & Yin, Ya Ping, 2013. "Apple's financial success: The precariousness of power exercised in global value chains," Accounting forum, Elsevier, vol. 37(4), pages 268-279.
    12. Andersson, Tord & Gleadle, Pauline & Haslam, Colin & Tsitsianis, Nick, 2010. "Bio-pharma: A financialized business model," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 21(7), pages 631-641.

    More about this item

    Keywords

    stock market; innovative enterprise; shareholder value; stock repurchases;
    All these keywords.

    JEL classification:

    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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