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Businesses find ways to push stock prices

Businesses find ways to push stock prices

Wednesday 16, 09 2020
A series of large corporations around the world are paying more for their shareholders, which helps their stock price to rise in the future.

According to the non-profit organization Oxfam, in the past decade, profits of companies on the list of the top 500 corporations in the world have increased nearly 160% (from $820 billion in 2009 to more than $ 2100 billion by the end of 2019)
Most of all of these returns are not invested in company growth factors such as employee salaries or quality of work. Low wages and working conditions in businesses are still a major challenge worldwide.
In addition, according to the Power report, Profits and the Pandamic announced by Oxfam on September 10 pointed out that corporate profits also do not reach the government through the form of tax payment. According to various estimates, the amount of tax fraudulent globally can reach $ 500 billion a year, even in many countries depending on taxes to finance public services. That said, although interest rates are still increasing each year, they are not invested in social protection and health programs (infrastructure and staff).

  • Borrowing money, tax evasion, layoff

If corporate profits are invested in empowering workers and governments, both business and society as a whole will be better prepared for the effects of the Covid-19 epidemic, "reports Oxfam stressed.
 Borrowing money, tax evasion, layoff
in Vietnam, as reported by the Institute for Economic Research and policy (VEPR) and Oxfam published in April, the tax losses estimated by evasion and tax avoidance in the period 2013-2017 fluctuated between 13,300-20,700 billion VND / year, equivalent to 6.4-9.9% of corporate income tax, about 3-4 times the annual number of violations detected by agencies. management.
Instead, in the past decade, most of the profits of large global corporations have gone to wealthy shareholders. Oxfam believes that the shareholder preference philosophy has become mainstream in many major companies around the world. As a result, they often fail to invest in employees, their ability to innovate, and their ability to adapt to imminent threats such as climate change.
In many parts of the world, executive salaries no longer reflect the values ​​the company creates. Instead, it is a reward for decisions that drive stock prices up. For example, the median share price bonus for US executives has increased from 60% to 85% since the 2008 global financial crisis. From 2010 to 2019, S&P 500 companies spend $ 9,100 billion to pay dividends to shareholders, or 90% of profits during that period. In 2015, 2016, and 2018, these corporations spent on average more than 100% of their profits on shareholder-related payments.
In other words, many companies not only pay off all profits to shareholders but sometimes fall into debt or use their reserves to pay wealthy shareholders, in order to drive up stock prices. Part of the reason is that the borrowing costs are very cheap due to the low-interest rates. That makes the net debt of the S&P 500 companies increased by nearly 200% since 2015.

  • Do everything to raise the stock price

Oxfam also analyzes the financial records of 59 most profitable companies in the world across the US, Europe, Japan, Korea, Australia, Brazil, India, Nigeria, and South Africa in the past 5 years. Accordingly, from 2016 to 2019, these 59 companies distributed $ 1,800 billion to shareholders, paying an average of 84% profits.
Do everything to raise the stock price 
Chevron, Procter & Gamble, and BP are the companies that pay the most shareholders as a percentage of earnings. Meanwhile, in 2019, Apple spent up to $ 81 billion to pay dividends.
Studies show that a strategy to maximize shareholder benefits is making the Covid-19 pandemic more severe and costly.
Oxfam's report notes that the 10 largest apparel brands in the world paid 74% of their profits, or $ 21 billion, to shareholders with dividends and share repurchases in 2019.
Meanwhile, in 2020, 2.2 million workers in Bangladesh have been affected when textile orders are canceled. A series of factory closings have reduced the country's revenue by about $ 3 billion.
In India, hundreds of workers at tea plantations, including women, were not paid because of the impact of the blockade against the Covid-19 pandemic. Meanwhile, some of the country's largest tea companies still increase profits or maintain profit margins thanks to costing cuts.
Mining operations in Peru are still being implemented despite the risk of infection among workers. Chevron announced a 10-15% cut in its global workforce but spent more cash to pay dividends and share buyback in the first quarter of 2020 than it had achieved from its main business.
Dangote Cement, Nigeria's largest cement company, is accused of layoffs of more than 3,000 employees without prior notice or wrong procedures while still expected to pay 136% of its profits to shareholders by 2020. South Africa's three largest healthcare companies, Netcare, Mediclinic, and Life Healthcare Group pay 163% of profits to shareholders through dividends and share buy-backs.
The U.S. aviation industry has received $50 billion in relief money from the government. It is worth mentioning that this amount is close to the amount that companies spend on shareholders from 2015 to the present. More than 400,000 jobs in the industry were abolished.
Similarly, there is a shortage of personal protective equipment and Covid-19 testing in healthcare companies that have spent the majority of their income paying dividends.

Source: Vietnam Finance, translated by An Nguyen - Vietnam Credit

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