Published by:
Harvard Business Publishing
Length: 8 pages
Topics:
Equity financing; Stockholders
Abstract
There is at most a marginal connection between the profitability of a mature company and the stock market''s view of it--as this study of 50 of America''s biggest companies demonstrates. Moreover, the price of a company''s stock has no effect on its operations because the price does not affect its access to capital. The stock market is irrelevant. Evidently irrelevant, too--to the companies--are the stockholders who are their nominal owners. Apart from changing the faulty ways corporate performance is measured, such as return on equity, executives can move more funds into investors'' hands in the form of dividends. Changes in the tax laws on dividends would encourage such movement.
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Abstract
There is at most a marginal connection between the profitability of a mature company and the stock market''s view of it--as this study of 50 of America''s biggest companies demonstrates. Moreover, the price of a company''s stock has no effect on its operations because the price does not affect its access to capital. The stock market is irrelevant. Evidently irrelevant, too--to the companies--are the stockholders who are their nominal owners. Apart from changing the faulty ways corporate performance is measured, such as return on equity, executives can move more funds into investors'' hands in the form of dividends. Changes in the tax laws on dividends would encourage such movement.