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Why Stock Buybacks Are Dangerous for the Economy

Author

Listed:
  • William Lazonick
  • Mustafa Erdem Sakinç

    (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique)

  • Matt Hopkins

Abstract

Even as the United States continues to experience its longest economic expansion since World War II, concern is growing that soaring corporate debt will make the economy susceptible to a contraction that could get out of control. The root cause of this concern is the trillions of dollars that major U.S. corporations have spent on open-market repurchases (aka "stock buybacks") since the financial crisis a decade ago. In 2018 alone, with corporate profits bolstered by the Tax Cuts and Jobs Act of 2017, companies in the S&P 500 Index did a combined $806 billion in buybacks, about $200 billion more than the previous record set in 2007. When companies do these buybacks, they deprive themselves of the liquidity that might help them cope when sales and profits decline in an economic downturn. Making matters worse, the proportion of buybacks funded by corporate bonds reached as high as 30% in both 2016 and 2017, according to JPMorgan Chase.

Suggested Citation

  • William Lazonick & Mustafa Erdem Sakinç & Matt Hopkins, 2020. "Why Stock Buybacks Are Dangerous for the Economy," Post-Print hal-03987814, HAL.
    • Handle: RePEc:hal:journl:hal-03987814
    as

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    Cited by:

    1. Mario Vaupel & David Bendig & Denise Fischer-Kreer & Malte Brettel, 2023. "The Role of Share Repurchases for Firms’ Social and Environmental Sustainability," Journal of Business Ethics, Springer, vol. 183(2), pages 401-428, March.
    2. 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.

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