Patrick Verwijmeren, Professor of Corporate Finance at Erasmus School of Economics, discusses the effects of paying dividends and the effects of buyback programmes in an article published by Het Financieele Dagblad. Indeed, in 2021, a record amount of shares were repurchased, exceeding the total amount of dividends paid out for the first time.
Almost all AEX funds run a multi-year programme, the Professor said. This means they announce to buy a certain number of shares for several years. However, only 60% of companies stick to such an announcement, Verwijmeren said. On the stock market, however, these actions are rarely punished. Another effect is seen with dividends: 'if you skip the dividend once or adjust it once, you get a hefty beating on the stock market,' the Professor says.
Yet there is a downside to these buyback programmes, as it would slow down labour productivity growth. The main reason is that companies mainly focus on efficiency improvements because there is less uncertainty attached to it, while they would be better off focusing on innovation.
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You can download the full article from Het Financieele Dagblad, 1 December 2022, above.