The beginning of the 21-st century has brought about profound and lasting changes in the architecture of the global economy. One of the symptoms is the growing pressure on the part of investors/shareholders for a regular, high return of cash to company owners. At least five important causes of this situation may be listed:
- growing, global capital excess which searches for increasing returns on invested funds, including the continued expansion of insurance and pension funds oriented towards a long-term increase in enterprise value;
- capital market expansion in many of the so-called emerging market countries (China, India, Russia, Brazil, countries of Eastern and Central Europe as well as the Middle East), which generated double-digit annual rates of return in the years 2002-2006, at least two to three times higher than in developed countries;
- global servicization of the economy, which leads to higher margins and higher corporate earnings and ensures a wider inflow of capital to enterprises, while markets estimate their value of traditional industrial enterprises;
- possibilities of on-line capital investment, 24 hours a day, which accelerates capital turnover and ensures a wider than before availability of information to investors;
- the boom in capital markets that has been around for several years, especially in the emerging markets, which, given the favourable economic conditions in the world and low inflation, facilitates the flow of savings to capital markets and boosts optimism as to the economic situation in the future.
Following the implementation of rules of management oriented towards long-term creation of enterprise value for shareholders and improvement of corporate performance, the pressure to return cash to investors had led to an explosion of dividends on the emerging markets, while the main stream of cash returned to company owners in the developed markets has shifted from cash dividends to own share repurchase for the purpose of redemption. For the first time in the history of American corporations, the value of this type of cash distribution has been higher than cash dividends since 1997 and in 2006 it was almost twice as high for the 500 biggest companies analyzed by S&P: the 500 S&P companies spent a total of 410 billion USD on own share repurchase, and 220 billion USD on cash dividends. Share repurchase is no longer just an alternative or a supplement to cash dividends, but has become the main form of benefit distribution to investors resulting from their share in equity.
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