Share Repurchases in Europe. A Value Extraction Analysis

Encompassed by maximization of shareholder value ideology, large US corporations raised corporate distributions to record high levels, particularly by share repurchases which provide short-term boosts to their stock prices. Since the early 1980s, the deregulation of the US economy and the financialization wave provided incentives for companies to direct financial resources towards shareholder value instead of innovation and job creation. This study examines the repercussions of these trends in the context of Europe. It shows that despite there is a lag in deregulation that helped European corporations to establish similar attitudes of shareholder value orientation, large European companies have been increasingly focused on corporate distributions to the cost of decreasing investment in productive resources and employment opportunities. Although share repurchases remained concentrated in a smaller number of companies and they are performed occasionally, together with dividends, European companies distribute corporate cash to shareholders as much as US companies. Increasing value extraction in Europe in the form of corporate payouts will only aggravate the vulnerability of the continent’s economy in the long run.