Shell Oil’s Scenarios: Strategic Foresight and Scenario Planning for the Future

Shell Oil’s Scenarios: Strategic Foresight and Scenario Planning for the Future

 

 

Why Scenarios

  • World is complex (Political, Economic, Social, Technological, Ecological)
  • Future is Uncertain (Critical Uncertainties)
  • Weak Signals
  • Forecasts are wrong
  • Predetermined elements ( Structure given, only variables are changing)
  • Possibility vs Probability Space
  • Scenarios are needed – Global, Specific, Exploratory, Decision
  • To Refine World Views/Mental Models/Re-perceiving/Learning/Right Brain
  • Links to Strategy and Decisions
  • Options Planning
  • Strategic Vision
  • Competitive Positioning
  • Actions and Execution

 

Please watch this video: Pierre Wack on Scenario Planning at Shell

https://www.sbs.ox.ac.uk/school/news/oxford-futures-library-unveils-rare-footage-scenarios-planning-pioneer-pierre-wack

 

 

Please see my related posts:

Art of Long View: Future, Uncertainty and Scenario Planning

Water | Food | Energy | Nexus: Mega Trends and Scenarios for the Future

Truth, Beauty, and Goodness: Integral Theory of Ken Wilber

Systems and Organizational Cybernetics

Semiotics, Bio-Semiotics and Cyber Semiotics

Meta Integral Theories: Integral Theory, Critical Realism, and Complex Thought

Integral Philosophy of the Rg Veda: Four Dimensional Man

 

 

 

 

Key Sources for Research:

 

 

Scenarios: An Explorer’s Guide

2008

Shell

 

https://www.shell.com/energy-and-innovation/the-energy-future/scenarios/new-lenses-on-the-future/earlier-scenarios/_jcr_content/par/expandablelist/expandablesection_842430368.stream/1447230877395/5ab112e96191fa79e1d30c31dc6e5cd2ce19ed518a4c1445ab32aa4c4b5c7ec5/shell-scenarios-explorersguide.pdf

 

 

 

 

 

Foundations of Scenario Planning

The Story of Pierre Wack

By Thomas J Chermack
2017

 

https://www.taylorfrancis.com/books/9781317279402

The scenario approach to possible futures for oil and natural gas

 

Jeremy Bentham

Shell

2014

 

https://ac.els-cdn.com/S0301421513008124/1-s2.0-S0301421513008124-main.pdf?_tid=1967f236-80f8-4756-854d-fb8fe083a1b7&acdnat=1526180172_f00c5f0478a3e7970e9187a000aae807

https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Strategy%20and%20Corporate%20Finance/Our%20Insights/The%20use%20and%20abuse%20of%20scenarios/The%20use%20and%20abuse%20of%20scenarios.ashx

 

Scenarios as a Tool for the 21st Century

 

Ged Davis

Shell

 

https://www.pik-potsdam.de/avec/peyresq2005/talks/0921/leemans/literature/davis_how_does_shell_do_scenarios.pdf

 

Plotting Your Scenarios

Jay Ogilvy and Peter Schwartz

 

http://www.meadowlark.co/plotting_your_scenarios.pdf

 

 

Advantages and disadvantages of scenario approaches for strategic foresight

Dana Mietzner and Guido Reger

2005

 

http://www.forschungsnetzwerk.at/downloadpub/stragegicforesight2005.pdf

 

 

 

Chapter 4
Scenario development: a typology of approaches

by
Philip van Notten

http://search.oecd.org/site/schoolingfortomorrowknowledgebase/futuresthinking/scenarios/37246431.pdf

 

 

Scenarios: Uncharted Waters Ahead

FROM THE SEPTEMBER 1985 ISSUE

https://hbr.org/1985/09/scenarios-uncharted-waters-ahead?referral=03758&cm_vc=rr_item_page.top_right

 

 

 

Living in the Futures

FROM THE MAY 2013 ISSUE

https://hbr.org/2013/05/living-in-the-futures

http://www.rolandkupers.com/wp/wp-content/uploads/2013/06/Link-14.pdf

 

 

 

 

Scenarios: Shooting the Rapids

FROM THE NOVEMBER 1985 ISSUE

Scenario Planning

Economist

 

https://www.economist.com/node/12000755

Inside Oil Giant Shell’s Race to Remake Itself For a Low-Price World

Fortune

http://fortune.com/2018/01/24/royal-dutch-shell-lower-oil-prices/

 

 

 

 

The Man Who Saw the Future

As the pace of change in business accelerates, the legacy of Pierre Wack, the father of scenario planning, is more relevant than ever.

Oil scenarios for long-term business planning: Royal Dutch Shell and generative explanation, 1960-2010

Michael Jefferson and Vlasios Voudouris

 

https://mpra.ub.uni-muenchen.de/27910/1/JeffersonVoudouris.pdf

 

 

the scenarios question

Andrew Curry

 

https://thenextwavefutures.files.wordpress.com/2007/08/the-scenarios-question.pdf

 

 

 

 

Scenario Planning: A Tool for Strategic Thinking

Paul J.H. Schoemaker
MIT Sloan Review

 

https://sloanreview.mit.edu/article/scenario-planning-a-tool-for-strategic-thinking/

https://www.researchgate.net/profile/Paul_Schoemaker/publication/220042263_Scenario_Planning_A_Tool_for_Strategic_Thinking/links/0deec5325c34174de2000000/Scenario-Planning-A-Tool-for-Strategic-Thinking.pdf

 

 

Vision 2040

Global scenarios for the oil and gas industry

 

Deloitte

https://www2.deloitte.com/content/dam/Deloitte/ru/Documents/energy-resources/ru_er_vision2040_eng.pdf

 

 

 

The origins and evolution of scenario techniques in long range business planning

 

Ron Bradfield, George Wright, George Burt, George Cairns, Kees Van Der Heijden

 

2005

https://cspo.org/wp-content/uploads/2014/11/read_Bradfield-Origins-and-Evolution-of-Scenerio-Techniques.pdf

 

 

 

 

Scenario Planning and Strategic Forecasting

Jay Ogilvy

Forbes

2015

https://www.forbes.com/sites/stratfor/2015/01/08/scenario-planning-and-strategic-forecasting/2/

 

 

 

Scenarios Practices: In Search of Theory

Angela Wilkinson

2009

 

https://pdfs.semanticscholar.org/0eec/0620a938a0d2f66266e9ce52c8a7c5ce1d09.pdf

 

 

 

Scenario Planning

UK Govenment

 

http://webarchive.nationalarchives.gov.uk/20140108141323/http://www.bis.gov.uk/assets/foresight/docs/horizon-scanning-centre/foresight_scenario_planning.pdf

 

 Definitions and Outcome Variables of Scenario Planning

 

THOMAS J. CHERMACK

SUSAN A. LYNHAM

 

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.1010.1821&rep=rep1&type=pdf

 

 

Strategic planning at Royal Dutch/Shell

 

Paul Schoemaker and Kees Van Der Heijden

 

https://www.researchgate.net/publication/230241845_Strategic_planning_at_Royal_DutchShell

https://www.researchgate.net/profile/Paul_Schoemaker/publication/230241845_Strategic_planning_at_Royal_DutchShell/links/59fb263b458515d07060613b/Strategic-planning-at-Royal-Dutch-Shell.pdf?origin=publication_detail

 

 

 

 

 

Three Decades of Scenario Planning in Shell

 

Peter Cornelius
Alexander Van de Putte
Mattia Romani

 

http://strategy.sjsu.edu/www.stable/B290/reading/Cornelius,%20P.,%20A.%20Van%20de%20Putte,%20et%20al.,%202005,%20California%20Management%20Review%2048(1)%2092-109.pdf

 

 

 

 

 

PLAUSIBILITY AND PROBABILITY IN SCENARIO PLANNING

 

Rafael Ramirez (Oxford University)

Cynthia Selin (Arizona State University)

 

http://eureka.sbs.ox.ac.uk/4754/1/ACCEPTED__Plausibility_and_Probability_in_Scenario_Planning_March_24_2013.pdf

http://orbit.dtu.dk/files/100480659/ACCEPTED_Plausibility_and_Probability_in_Scenario_Planning_March_24_2013.pdf

 

 

 

How to Build Scenarios Planning for “long fuse, big bang” problems in an era of uncertainty.

BY LAWRENCE WILKINSON

 

http://www.cse.chalmers.se/research/group/idc/ituniv/kurser/09/hcd/literatures/Wilkinson%20on%20scenarios_Martin%20B.pdf

 

 

 

 

Shaping the Future of Global Food Systems: A Scenarios Analysis

WEF

2017

 

http://www3.weforum.org/docs/IP/2016/NVA/WEF_FSA_FutureofGlobalFoodSystems.pdf

 

 

 

 

 

The Art of Scenarios and Strategic Planning: Tools and Pitfalls

 

MICHEL GODET

 

http://en.laprospective.fr/dyn/anglais/articles/art_of_scenarios.pdf

 

 

 

 

Scenario-Based Strategic Planning in Times of Tumultuous Change

AT Kearney

https://www.atkearney.de/documents/10192/376745/Scenario-Based_Strategic_Planning_in_Times_of_Tumultuous_Change.pdf/0012fe94-4038-449b-8423-bc81a3dba1a5

 

 

 

SHELL SCENARIOS

https://www.shell.com/energy-and-innovation/the-energy-future/scenarios.html

 

 

WHAT ARE SHELL SCENARIOS?

https://www.shell.com/energy-and-innovation/the-energy-future/scenarios/what-are-scenarios.html

 

 

SKY SCENARIO

https://www.shell.com/energy-and-innovation/the-energy-future/scenarios/shell-scenario-sky.html

 

 

 

EARLIER SCENARIOS

https://www.shell.com/energy-and-innovation/the-energy-future/scenarios/new-lenses-on-the-future/earlier-scenarios.html

 

NEW LENS ON THE FUTURE

https://www.shell.com/energy-and-innovation/the-energy-future/scenarios/new-lenses-on-the-future.html

 

 

SHELL SCENARIOS ENERGY MODELS

https://www.shell.com/energy-and-innovation/the-energy-future/scenarios/shell-scenarios-energy-models.html

 

 

 

SHELL SCENARIOS IN FILM

 

https://www.shell.com/energy-and-innovation/the-energy-future/scenarios/shell-scenarios-in-film.html

 

 

40 Years of Shell Scenarios

https://www.shell.com/promos/forty-years-of-shell-scenarios/_jcr_content.stream/1448557479375/703c8a8b176922ae312712b355706ce087652a860980d5ffecac769817903d88/shell-scenarios-40yearsbook080213.pdf

 

 

 

Understanding the Stress Nexus

 

http://s06.static-shell.com/content/dam/shell-new/local/country/mex/downloads/pdf/stress-nexus-booklet.pdf

 

 

 

SHELL ENERGY TRANSITION REPORT

 

https://www.shell.com/energy-and-innovation/the-energy-future/shell-energy-transition-report/_jcr_content/par/toptasks.stream/1524757699226/f51e17dbe7de5b0eddac2ce19275dc946db0e407ae60451e74acc7c4c0acdbf1/web-shell-energy-transition-report.pdf

 

 

MEET THE SHELL SCENARIOS TEAM

https://www.shell.com/energy-and-innovation/the-energy-future/scenarios/meet-the-shell-scenarios-team.html

 

 

 

SUSTAINABILITY REPORTS

https://www.shell.com/sustainability/sustainability-reporting-and-performance-data/sustainability-reports.html

 

 

 

Scenario planning resources

https://people.well.com/user/mb/scenario_planning/

 

 

HOW CAN SCENARIOS SHAPE DECISION MAKING?

Dr. John W. Selsky

2013

 

http://www.highar.com/Content/themes/highar/resources/Scenarios%20Decision%20Making-Berlin.pdf

 

 

 

PROFESSIONAL DREAMERS:

THE PAST IN THE FUTURE OF SCENARIO PLANNING

By Cynthia Selin, Arizona State University

 

2007

https://www.cynthiaselin.com/uploads/4/6/5/7/4657243/selin_2007_professional_dreamers.pdf

 

 

 

 

An Introduction to Scenario Thinking

“ We cannot predict the future, but we must act!”

 

By Eric Best

 

http://ericbestonline.com/wordpress/wp-content/uploads/2013/03/An-Introduction-to-Secnario-Thinking.pdf

 

 

the future of futures

A Curry

 

https://www.lancaster.ac.uk/social-futures/wp-content/uploads/2015/08/FutureOfFutures_APF_ebook_E2.pdf

 

 

We are grateful to Cynthia Selin and Napier Collyns for compiling this bibliography.

 

https://www.triarchypress.net/uploads/1/4/0/0/14002490/donmichael_bibliography.pdf

 

 

 

 

In Memory of Pierre Wack

by Napier Collyns and Hardin Tibbs

Netview

GBN

 

https://static1.squarespace.com/static/570ce46bd51cd428a1ef3190/t/570ff31f86db43ff62348b1a/1460663078600/Pierre+Wack+1922-1997+.pdf

 

 

 

 

Re-reading Pierre Wack on scenarios

A Curry

2017

https://thenextwavefutures.wordpress.com/2017/12/09/pierre-wack-on-scenarios-shell/

 

 

 

Scenario Planning Resources

Thinking Futures

https://thinkingfutures.net/scenario-planning-resources/

 

 

 

Journal of Futures Studies

http://jfsdigital.org

 

 

 WHAT IF? THE ART OF SCENARIO

THINKING FOR NONPROFITS

 

https://training.fws.gov/courses/alc/alc3194/resources/publications/scenario-planning/What_if-Art_of_Scenario_Thinking_for_NonProfits.pdf

 

 

Oxford Futures Library unveils rare footage of scenarios planning pioneer Pierre Wack

https://www.sbs.ox.ac.uk/school/news/oxford-futures-library-unveils-rare-footage-scenarios-planning-pioneer-pierre-wack

 

 

Should Probabilities Be Used with Scenarios?

 

Stephen M. Millett

https://pdfs.semanticscholar.org/2870/f9cef0b618c480312802fbb78e49bd69fa83.pdf

GBN (Global Business Network)

Wikipedia

https://en.wikipedia.org/wiki/Global_Business_Network

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Cash and Investments: Corporate Savings Glut in USA

Cash and Investments: Corporate Savings Glut in USA

 

Profits/Retained Earnings of a firm can be used in number of ways:

  • Capital Investments
  • Debt Repayment
  • Dividends
  • Cash and Short Term Investments
  • Long Term Investments
  • Share Buybacks
  • M&A Investments

Please see three quarterly reports from FACTSET on trends in

  • Dividents
  • Buybacks
  • Cash and Investments

Share buybacks are very common for several years.

Please see my related posts

Why do Firms buyback their Shares? Causes and Consequences.

Low Interest Rates and Business Investments : Update August 2017

Short term Thinking in Investment Decisions of Businesses and Financial Markets

Mergers and Acquisitions – Long Term Trends and Waves

Business Investments and Low Interest Rates

 

From The Corporate Saving Glut in the Aftermath of the Global Financial Crisis

cash

From Why Are Corporations Holding So Much Cash?

cash 2cash3

 

From FACTSET Cash and Investment Quarterly

cash4

Companies are holding on to the large sum of cash.  Rather than capital investments (CAPEX), cash is being used for share buybacks, dividend payouts, mergers and acquisitions, and cash investments (short and long term).

 

From FACTSET Cash and Investment Quarterly

cash5

Key Sources of Research:

 

The Corporate Saving Glut in the Aftermath of the Global Financial Crisis

Joseph W. Gruber
Steven B. Kamin

This Draft: June 2015

https://www.imf.org/external/np/seminars/eng/2015/secularstag/pdf/Gruber.pdf

 

The global corporate saving glut: Long-term evidence

Peter Chen, Loukas Karabarbounis, Brent Neiman

05 April 2017

http://voxeu.org/article/global-corporate-saving-glut

 

 

 

Declining Labor Shares and the Global Rise of Corporate Saving

Loukas Karabarbounis

Brent Neiman

October 2012

http://faculty.chicagobooth.edu/brent.neiman/research/labshare.pdf

 

The Global Rise of Corporate Saving

Peter Chen

Loukas Karabarbounis

Brent Neiman

March 2017

http://faculty.chicagobooth.edu/brent.neiman/research/CKN.pdf

http://www.nber.org/papers/w23133.pdf

 

FACTSET Dividend Quarterly

https://www.factset.com/websitefiles/PDFs/dividend

 

FACTSET Buyback Quarterly

https://www.factset.com/websitefiles/PDFs/buyback

FACTSET Cash and Investment Quarterly

https://www.factset.com/websitefiles/PDFs/cashinvestment

https://insight.factset.com/hubfs/Cash%20and%20Investment%20Quarterly/Cash%20and%20Investment%20Quarterly%20Q3%202016_12.21.16_v2.pdf

 

 

 

Why Are Corporations Holding So Much Cash?

By Juan M. Sanchez and Emircan Yurdagul

2013

 

https://www.stlouisfed.org/~/media/Files/PDFs/publications/pub_assets/pdf/re/2013/a/RE_Jan_2013.pdf

 

 

Why Do Companies Hold Cash?

Gianni La Cava and Callan Windsor

RDP 2016-03

 

https://www.rba.gov.au/publications/rdp/2016/pdf/rdp2016-03.pdf

 

 

MULTINATIONALS AND THE HIGH CASH HOLDINGS PUZZLE

Lee Pinkowitz

René M. Stulz Rohan Williamson

June 2012

 

http://www.nber.org/papers/w18120.pdf?new_window=1

 

 

 

The Determinants and Implications of Corporate Cash Holdings

Tim Opler, Lee Pinkowitz, Rene Stulz, Rohan Williamson

Issued in October 1997

http://www.nber.org/papers/w6234.pdf

 

 

WHY DO U.S. FIRMS HOLD SO MUCH MORE CASH THAN THEY USED TO?

Thomas W. Bates Kathleen M. Kahle Rene M. Stulz

September 2006

 

http://www.nber.org/papers/w12534.pdf

 

 

Why do firms hold so much cash? A tax-based explanation

C. Fritz Foley, Jay C. Hartzell, Sheridan Titman, and Garry Twite

October 2006

 

http://www.nber.org/papers/w12649.pdf

 

 

It’s Alive! Corporate Cash and Business Investment

Finn Poschmann

 

https://www.cdhowe.org/sites/default/files/attachments/research_papers/mixed/e-brief_181.pdf

 

 

Dead money

There are good reasons for hoarding cash.

John Lorinc

 

http://www.canadianbusiness.com/economy/dead-money/

 

 

IS “DEAD” MONEY ALIVE? A FIRM-LEVEL ANALYSIS OF CANADIAN NON-FINANCIAL LISTED CORPORATIONS CASH HOLDING AND CAPITAL EXPENDITURE BEHAVIOR

2014

IMF

 

https://www.imf.org/external/pubs/ft/scr/2014/cr1428.pdf

Why do Firms buyback their Shares? Causes and Consequences.

Why do Firms buyback their Shares? Causes and Consequences.

 

From Stock buybacks: From retain-and reinvest to downsize-and-distribute

Since the late 1980s, in the name of “maximizing shareholder value” (MSV), U.S. corporate distributions to shareholders have exploded. Dividends are the traditional mode of providing a stream of income to shareholders who, as the name says, hold on to a company’s stock, thus supporting stock-price stability. In contrast, stock repurchases, in which a company buys back its own shares from the marketplace, thus reducing the number of outstanding shares, provide short-term boosts to a company’s stock price, thus contributing to stock-price volatility. Until the mid-1980s dividends were the overwhelmingly predominant form of distributing cash to shareholders. Since then, however, even with dividends on the rise, stock buybacks have added substantially to distributions to shareholders.

Over the decade 2004-2013, 454 companies in S&P 500 Index in March 2014 that were publicly listed over the ten years did $3.4 trillion in stock buybacks, representing 51 percent of net income. These companies expended an additional 35 percent of net income on dividends.5 And buybacks remain in vogue: According to data compiled by Factset, for the 12-month period ending December 2014, S&P 500 companies spent $565 billion on buybacks, up 18 percent from the previous 12-month period.6

Stock buybacks are an important part of the explanation for both the concentration of income among the richest households and the disappearance of middle-class employment opportunities in the United States over the past three decades.7 Over that period the resource-allocation regime at many, if not most, major U.S. business corporations has transitioned from “retain-and-reinvest” to “downsize-and-distribute.” Under retain-and-reinvest, the corporation retains earnings and reinvests them in the productive capabilities embodied in its labor force. Under downsize-and-distribute, the corporation lays off experienced, and often more expensive, workers, and distributes corporate cash to shareholders.8 My research suggests that, with its downsize-and-distribute resource-allocation regime, the “buyback corporation” is in large part responsible for a national economy characterized by income inequity, employment instability, and diminished innovative capability – or the opposite of what I have called “sustainable prosperity.”9

 

 From Buyback Quarterly – Factset/December 2016

buyback2

 

From Stock buybacks: From retain-and reinvest to downsize-and-distribute

buyback

Profits Without Prosperity

 

Five years after the official end of the Great Recession, corporate profits are high, and the stock market is booming. Yet most Americans are not sharing in the recovery. While the top 0.1% of income recipients—which include most of the highest-ranking corporate executives—reap almost all the income gains, good jobs keep disappearing, and new employment opportunities tend to be insecure and underpaid. Corporate profitability is not translating into widespread economic prosperity.

The allocation of corporate profits to stock buybacks deserves much of the blame. Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees.

The buyback wave has gotten so big, in fact, that even shareholders—the presumed beneficiaries of all this corporate largesse—are getting worried. “It concerns us that, in the wake of the financial crisis, many companies have shied away from investing in the future growth of their companies,” Laurence Fink, the chairman and CEO of BlackRock, the world’s largest asset manager, wrote in an open letter to corporate America in March. “Too many companies have cut capital expenditure and even increased debt to boost dividends and increase share buybacks.”

Why are such massive resources being devoted to stock repurchases? Corporate executives give several reasons, which I will discuss later. But none of them has close to the explanatory power of this simple truth: Stock-based instruments make up the majority of their pay, and in the short term buybacks drive up stock prices. In 2012 the 500 highest-paid executives named in proxy statements of U.S. public companies received, on average, $30.3 million each; 42% of their compensation came from stock options and 41% from stock awards. By increasing the demand for a company’s shares, open-market buybacks automatically lift its stock price, even if only temporarily, and can enable the company to hit quarterly earnings per share (EPS) targets.

As a result, the very people we rely on to make investments in the productive capabilities that will increase our shared prosperity are instead devoting most of their companies’ profits to uses that will increase their own prosperity—with unsurprising results. Even when adjusted for inflation, the compensation of top U.S. executives has doubled or tripled since the first half of the 1990s, when it was already widely viewed as excessive. Meanwhile, overall U.S. economic performance has faltered.

If the U.S. is to achieve growth that distributes income equitably and provides stable employment, government and business leaders must take steps to bring both stock buybacks and executive pay under control. The nation’s economic health depends on it.

From Value Creation to Value Extraction

For three decades I’ve been studying how the resource allocation decisions of major U.S. corporations influence the relationship between value creation and value extraction, and how that relationship affects the U.S. economy. From the end of World War II until the late 1970s, a retain-and-reinvest approach to resource allocation prevailed at major U.S. corporations. They retained earnings and reinvested them in increasing their capabilities, first and foremost in the employees who helped make firms more competitive. They provided workers with higher incomes and greater job security, thus contributing to equitable, stable economic growth—what I call “sustainable prosperity.”

This pattern began to break down in the late 1970s, giving way to a downsize-and-distribute regime of reducing costs and then distributing the freed-up cash to financial interests, particularly shareholders. By favoring value extraction over value creation, this approach has contributed to employment instability and income inequality.

As documented by the economists Thomas Piketty and Emmanuel Saez, the richest 0.1% of U.S. households collected a record 12.3% of all U.S. income in 2007, surpassing their 11.5% share in 1928, on the eve of the Great Depression. In the financial crisis of 2008–2009, their share fell sharply, but it has since rebounded, hitting 11.3% in 2012.

Since the late 1980s, the largest component of the income of the top 0.1% has been compensation, driven by stock-based pay. Meanwhile, the growth of workers’ wages has been slow and sporadic, except during the internet boom of 1998–2000, the only time in the past 46 years when real wages rose by 2% or more for three years running. Since the late 1970s, average growth in real wages has increasingly lagged productivity growth. (See the exhibit “When Productivity and Wages Parted Ways.”)

When Productivity and Wages Parted Ways

From 1948 to the mid-1970s, increases in productivity and wages went hand in hand. Then a gap opened between the two.

Not coincidentally, U.S. employment relations have undergone a transformation in the past three decades. Mass plant closings eliminated millions of unionized blue-collar jobs. The norm of a white-collar worker’s spending his or her entire career with one company disappeared. And the seismic shift toward offshoring left all members of the U.S. labor force—even those with advanced education and substantial work experience—vulnerable to displacement.

To some extent these structural changes could be justified initially as necessary responses to changes in technology and competition. In the early 1980s permanent plant closings were triggered by the inroads superior Japanese manufacturers had made in consumer-durable and capital-goods industries. In the early 1990s one-company careers fell by the wayside in the IT sector because the open-systems architecture of the microelectronics revolution devalued the skills of older employees versed in proprietary technologies. And in the early 2000s the offshoring of more-routine tasks, such as writing unsophisticated software and manning customer call centers, sped up as a capable labor force emerged in low-wage developing economies and communications costs plunged, allowing U.S. companies to focus their domestic employees on higher-value-added work.

These practices chipped away at the loyalty and dampened the spending power of American workers, and often gave away key competitive capabilities of U.S. companies. Attracted by the quick financial gains they produced, many executives ignored the long-term effects and kept pursuing them well past the time they could be justified.

A turning point was the wave of hostile takeovers that swept the country in the 1980s. Corporate raiders often claimed that the complacent leaders of the targeted companies were failing to maximize returns to shareholders. That criticism prompted boards of directors to try to align the interests of management and shareholders by making stock-based pay a much bigger component of executive compensation.

Given incentives to maximize shareholder value and meet Wall Street’s expectations for ever higher quarterly EPS, top executives turned to massive stock repurchases, which helped them “manage” stock prices. The result: Trillions of dollars that could have been spent on innovation and job creation in the U.S. economy over the past three decades have instead been used to buy back shares for what is effectively stock-price manipulation.

Good Buybacks and Bad

Not all buybacks undermine shared prosperity. There are two major types: tender offers and open-market repurchases. With the former, a company contacts shareholders and offers to buy back their shares at a stipulated price by a certain near-term date, and then shareholders who find the price agreeable tender their shares to the company. Tender offers can be a way for executives who have substantial ownership stakes and care about a company’s long-term competitiveness to take advantage of a low stock price and concentrate ownership in their own hands. This can, among other things, free them from Wall Street’s pressure to maximize short-term profits and allow them to invest in the business. Henry Singleton was known for using tender offers in this way at Teledyne in the 1970s, and Warren Buffett for using them at GEICO in the 1980s. (GEICO became wholly owned by Buffett’s holding company, Berkshire Hathaway, in 1996.) As Buffett has noted, this kind of tender offer should be made when the share price is below the intrinsic value of the productive capabilities of the company and the company is profitable enough to repurchase the shares without impeding its real investment plans.

But tender offers constitute only a small portion of modern buybacks. Most are now done on the open market, and my research shows that they often come at the expense of investment in productive capabilities and, consequently, aren’t great for long-term shareholders.

Companies have been allowed to repurchase their shares on the open market with virtually no regulatory limits since 1982, when the SEC instituted Rule 10b-18 of the Securities Exchange Act. Under the rule, a corporation’s board of directors can authorize senior executives to repurchase up to a certain dollar amount of stock over a specified or open-ended period of time, and the company must publicly announce the buyback program. After that, management can buy a large number of the company’s shares on any given business day without fear that the SEC will charge it with stock-price manipulation—provided, among other things, that the amount does not exceed a “safe harbor” of 25% of the previous four weeks’ average daily trading volume. The SEC requires companies to report total quarterly repurchases but not daily ones, meaning that it cannot determine whether a company has breached the 25% limit without a special investigation.

Despite the escalation in buybacks over the past three decades, the SEC has only rarely launched proceedings against a company for using them to manipulate its stock price. And even within the 25% limit, companies can still make huge purchases: Exxon Mobil, by far the biggest stock repurchaser from 2003 to 2012, can buy back about $300 million worth of shares a day, and Apple up to $1.5 billion a day. In essence, Rule 10b-18 legalized stock market manipulation through open-market repurchases.

The rule was a major departure from the agency’s original mandate, laid out in the Securities Exchange Act in 1934. The act was a reaction to a host of unscrupulous activities that had fueled speculation in the Roaring ’20s, leading to the stock market crash of 1929 and the Great Depression. To prevent such shenanigans, the act gave the SEC broad powers to issue rules and regulations.

During the Reagan years, the SEC began to roll back those rules. The commission’s chairman from 1981 to 1987 was John Shad, a former vice chairman of E.F. Hutton and the first Wall Street insider to lead the commission in 50 years. He believed that the deregulation of securities markets would channel savings into economic investments more efficiently and that the isolated cases of fraud and manipulation that might go undetected did not justify onerous disclosure requirements for companies. The SEC’s adoption of Rule 10b-18 reflected that point of view.

Debunking the Justifications for Buybacks

Executives give three main justifications for open-market repurchases. Let’s examine them one by one:

1. Buybacks are investments in our undervalued shares that signal our confidence in the company’s future.

This makes some sense. But the reality is that over the past two decades major U.S. companies have tended to do buybacks in bull markets and cut back on them, often sharply, in bear markets. (See the exhibit “Where Did the Money from Productivity Increases Go?”) They buy high and, if they sell at all, sell low. Research by the Academic-Industry Research Network, a nonprofit I cofounded and lead, shows that companies that do buybacks never resell the shares at higher prices.

Where Did the Money from Productivity Increases Go?

Buybacks—as well as dividends—have skyrocketed in the past 20 years. (Note that these data are for the 251 companies that were in the S&P 500 in January 2013 and were public from 1981 through 2012. Inclusion of firms that went public after 1981, such as Microsoft, Cisco, Amgen, Oracle, and Dell, would make the increase in buybacks even more marked.) Though executives say they repurchase only undervalued stocks, buybacks increased when the stock market boomed, casting doubt on that claim.

Source: Standard & Poor’s Compustat database; the Academic-Industry Research Network.
Note: Mean repurchase and dividend amounts are in 2012 dollars.

 

Once in a while a company that bought high in a boom has been forced to sell low in a bust to alleviate financial distress. GE, for example, spent $3.2 billion on buybacks in the first three quarters of 2008, paying an average price of $31.84 per share. Then, in the last quarter, as the financial crisis brought about losses at GE Capital, the company did a $12 billion stock issue at an average share price of $22.25, in a failed attempt to protect its triple-A credit rating.

In general, when a company buys back shares at what turn out to be high prices, it eventually reduces the value of the stock held by continuing shareholders. “The continuing shareholder is penalized by repurchases above intrinsic value,” Warren Buffett wrote in his 1999 letter to Berkshire Hathaway shareholders. “Buying dollar bills for $1.10 is not good business for those who stick around.”

2. Buybacks are necessary to offset the dilution of earnings per share when employees exercise stock options.

Calculations that I have done for high-tech companies with broad-based stock option programs reveal that the volume of open-market repurchases is generally a multiple of the volume of options that employees exercise. In any case, there’s no logical economic rationale for doing repurchases to offset dilution from the exercise of employee stock options. Options are meant to motivate employees to work harder now to produce higher future returns for the company. Therefore, rather than using corporate cash to boost EPS immediately, executives should be willing to wait for the incentive to work. If the company generates higher earnings, employees can exercise their options at higher stock prices, and the company can allocate the increased earnings to investment in the next round of innovation.

3. Our company is mature and has run out of profitable investment opportunities; therefore, we should return its unneeded cash to shareholders.

Some people used to argue that buybacks were a more tax-efficient means of distributing money to shareholders than dividends. But that has not been the case since 2003, when the tax rates on long-term capital gains and qualified dividends were made the same. Much more important issues remain, however: What is the CEO’s main role and his or her responsibility to shareholders?

Companies that have built up productive capabilities over long periods typically have huge organizational and financial advantages when they enter related markets. One of the chief functions of top executives is to discover new opportunities for those capabilities. When they opt to do large open-market repurchases instead, it raises the question of whether these executives are doing their jobs.

A related issue is the notion that the CEO’s main obligation is to shareholders. It’s based on a misconception of the shareholders’ role in the modern corporation. The philosophical justification for giving them all excess corporate profits is that they are best positioned to allocate resources because they have the most interest in ensuring that capital generates the highest returns. This proposition is central to the “maximizing shareholder value” (MSV) arguments espoused over the years, most notably by Michael C. Jensen. The MSV school also posits that companies’ so-called free cash flow should be distributed to shareholders because only they make investments without a guaranteed return—and hence bear risk.

Why Money for Reinvestment Has Dried Up

Since the early 1980s, when restrictions on open-market buybacks were greatly eased, distributions to shareholders have absorbed a huge portion of net income, leaving much less for reinvestment in companies.

Note: Data are for the 251 companies that were in the S&P 500 Index in January 2013 and were publicly listed from 1981 through 2012. If the companies that went public after 1981, such as Microsoft, Cisco, Amgen, Oracle, and Dell, were included, repurchases as a percentage of net income would be even higher.

But the MSV school ignores other participants in the economy who bear risk by investing without a guaranteed return. Taxpayers take on such risk through government agencies that invest in infrastructure and knowledge creation. And workers take it on by investing in the development of their capabilities at the firms that employ them. As risk bearers, taxpayers, whose dollars support business enterprises, and workers, whose efforts generate productivity improvements, have claims on profits that are at least as strong as the shareholders’.

The irony of MSV is that public-company shareholders typically never invest in the value-creating capabilities of the company at all. Rather, they invest in outstanding shares in the hope that the stock price will rise. And a prime way in which corporate executives fuel that hope is by doing buybacks to manipulate the market. The only money that Apple ever raised from public shareholders was $97 million at its IPO in 1980. Yet in recent years, hedge fund activists such as David Einhorn and Carl Icahn—who played absolutely no role in the company’s success over the decades—have purchased large amounts of Apple stock and then pressured the company to announce some of the largest buyback programs in history.

The past decade’s huge increase in repurchases, in addition to high levels of dividends, have come at a time when U.S. industrial companies face new competitive challenges. This raises questions about how much of corporate cash flow is really “free” to be distributed to shareholders. Many academics—for example, Gary P. Pisano and Willy C. Shih of Harvard Business School, in their 2009 HBR article “Restoring American Competitiveness” and their book Producing Prosperity—have warned that if U.S. companies don’t start investing much more in research and manufacturing capabilities, they cannot expect to remain competitive in a range of advanced technology industries.

Retained earnings have always been the foundation for investments in innovation. Executives who subscribe to MSV are thus copping out of their responsibility to invest broadly and deeply in the productive capabilities their organizations need to continually innovate. MSV as commonly understood is a theory of value extraction, not value creation.

Executives Are Serving Their Own Interests

As I noted earlier, there is a simple, much more plausible explanation for the increase in open-market repurchases: the rise of stock-based pay. Combined with pressure from Wall Street, stock-based incentives make senior executives extremely motivated to do buybacks on a colossal and systemic scale.

Consider the 10 largest repurchasers, which spent a combined $859 billion on buybacks, an amount equal to 68% of their combined net income, from 2003 through 2012. (See the exhibit “The Top 10 Stock Repurchasers.”) During the same decade, their CEOs received, on average, a total of $168 million each in compensation. On average, 34% of their compensation was in the form of stock options and 24% in stock awards. At these companies the next four highest-paid senior executives each received, on average, $77 million in compensation during the 10 years—27% of it in stock options and 29% in stock awards. Yet since 2003 only three of the 10 largest repurchasers—Exxon Mobil, IBM, and Procter & Gamble—have outperformed the S&P 500 Index.

The Top 10 Stock Repurchasers 2003–2012

At most of the leading U.S. companies below, distributions to shareholders were well in excess of net income. These distributions came at great cost to innovation, employment, and—in cases such as oil refining and pharmaceuticals—customers who had to pay higher prices for products.

Sources: Standard & Poor’s Compustat database; Standard & Poor’s Execucomp database; the Academic-Industry Research Network.
Note: The percentages of stock-based pay include gains realized from exercising stock options for all years plus, for 2003–2005, the fair value of restricted stock grants or, for 2006–2012, gains realized on vesting of stock awards. Rounding to the nearest billion may affect total distributions and percentages of net income. *Steven Ballmer, Microsoft’s CEO from January 2000 to February 2014, did not receive any stock-based pay. He does, however, own about 4% of Microsoft’s shares, valued at more than $13 billion.

Reforming the System

Buybacks have become an unhealthy corporate obsession. Shifting corporations back to a retain-and-reinvest regime that promotes stable and equitable growth will take bold action. Here are three proposals:

Put an end to open-market buybacks.

In a 2003 update to Rule 10b-18, the SEC explained: “It is not appropriate for the safe harbor to be available when the issuer has a heightened incentive to manipulate its share price.” In practice, though, the stock-based pay of the executives who decide to do repurchases provides just this “heightened incentive.” To correct this glaring problem, the SEC should rescind the safe harbor.

A good first step toward that goal would be an extensive SEC study of the possible damage that open-market repurchases have done to capital formation, industrial corporations, and the U.S. economy over the past three decades. For example, during that period the amount of stock taken out of the market has exceeded the amount issued in almost every year; from 2004 through 2013 this net withdrawal averaged $316 billion a year. In aggregate, the stock market is not functioning as a source of funds for corporate investment. As I’ve already noted, retained earnings have always provided the base for such investment. I believe that the practice of tying executive compensation to stock price is undermining the formation of physical and human capital.

Rein in stock-based pay.

Many studies have shown that large companies tend to use the same set of consultants to benchmark executive compensation, and that each consultant recommends that the client pay its CEO well above average. As a result, compensation inevitably ratchets up over time. The studies also show that even declines in stock price increase executive pay: When a company’s stock price falls, the board stuffs even more options and stock awards into top executives’ packages, claiming that it must ensure that they won’t jump ship and will do whatever is necessary to get the stock price back up.

In 1991 the SEC began allowing top executives to keep the gains from immediately selling stock acquired from options. Previously, they had to hold the stock for six months or give up any “short-swing” gains. That decision has only served to reinforce top executives’ overriding personal interest in boosting stock prices. And because corporations aren’t required to disclose daily buyback activity, it gives executives the opportunity to trade, undetected, on inside information about when buybacks are being done. At the very least, the SEC should stop allowing executives to sell stock immediately after options are exercised. Such a rule could help launch a much-needed discussion of meaningful reform that goes beyond the 2010 Dodd-Frank Act’s “Say on Pay”—an ineffectual law that gives shareholders the right to make nonbinding recommendations to the board on compensation issues.

But overall the use of stock-based pay should be severely limited. Incentive compensation should be subject to performance criteria that reflect investment in innovative capabilities, not stock performance.

Transform the boards that determine executive compensation.

Boards are currently dominated by other CEOs, who have a strong bias toward ratifying higher pay packages for their peers. When approving enormous distributions to shareholders and stock-based pay for top executives, these directors believe they’re acting in the interests of shareholders.

That’s a big part of the problem. The vast majority of shareholders are simply investors in outstanding shares who can easily sell their stock when they want to lock in gains or minimize losses. As I argued earlier, the people who truly invest in the productive capabilities of corporations are taxpayers and workers. Taxpayers have an interest in whether a corporation that uses government investments can generate profits that allow it to pay taxes, which constitute the taxpayers’ returns on those investments. Workers have an interest in whether the company will be able to generate profits with which it can provide pay increases and stable career opportunities.

It’s time for the U.S. corporate governance system to enter the 21st century: Taxpayers and workers should have seats on boards. Their representatives would have the insights and incentives to ensure that executives allocate resources to investments in capabilities most likely to generate innovations and value.

Courage in Washington

After the Harvard Law School dean Erwin Griswold published “Are Stock Options Getting out of Hand?” in this magazine in 1960, Senator Albert Gore launched a campaign that persuaded Congress to whittle away special tax advantages for executive stock options. After the Tax Reform Act of 1976, the compensation expert Graef Crystal declared that stock options that qualified for the capital-gains tax rate, “once the most popular of all executive compensation devices…have been given the last rites by Congress.” It also happens that during the 1970s the share of all U.S. income that the top 0.1% of households got was at its lowest point in the past century.

The members of the U.S. Congress should show the courage and independence of their predecessors and go beyond “Say on Pay” to do something about excessive executive compensation. In addition, Congress should fix a broken tax regime that frequently rewards value extractors as if they were value creators and ignores the critical role of government investment in the infrastructure and knowledge that are so crucial to the competitiveness of U.S. business.

Instead, what we have now are corporations that lobby—often successfully—for federal subsidies for research, development, and exploration, while devoting far greater resources to stock buybacks. Here are three examples of such hypocrisy:

Alternative energy.

Exxon Mobil, while receiving about $600 million a year in U.S. government subsidies for oil exploration (according to the Center for American Progress), spends about $21 billion a year on buybacks. It spends virtually no money on alternative energy research.

Meanwhile, through the American Energy Innovation Council, top executives of Microsoft, GE, and other companies have lobbied the U.S. government to triple its investment in alternative energy research and subsidies, to $16 billion a year. Yet these companies had plenty of funds they could have invested in alternative energy on their own. Over the past decade Microsoft and GE, combined, have spent about that amount annually on buybacks.

Nanotechnology.

Intel executives have long lobbied the U.S. government to increase spending on nanotechnology research. In 2005, Intel’s then-CEO, Craig R. Barrett, argued that “it will take a massive, coordinated U.S. research effort involving academia, industry, and state and federal governments to ensure that America continues to be the world leader in information technology.” Yet from 2001, when the U.S. government launched the National Nanotechnology Initiative (NNI), through 2013 Intel’s expenditures on buybacks were almost four times the total NNI budget.

Pharmaceutical drugs.

In response to complaints that U.S. drug prices are at least twice those in any other country, Pfizer and other U.S. pharmaceutical companies have argued that the profits from these high prices—enabled by a generous intellectual-property regime and lax price regulation—permit more R&D to be done in the United States than elsewhere. Yet from 2003 through 2012, Pfizer funneled an amount equal to 71% of its profits into buybacks, and an amount equal to 75% of its profits into dividends. In other words, it spent more on buybacks and dividends than it earned and tapped its capital reserves to help fund them. The reality is, Americans pay high drug prices so that major pharmaceutical companies can boost their stock prices and pad executive pay.Given the importance of the stock market and corporations to the economy and society, U.S. regulators must step in to check the behavior of those who are unable or unwilling to control themselves. “The mission of the U.S. Securities and Exchange Commission,” the SEC’s website explains, “is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” Yet, as we have seen, in its rulings on and monitoring of stock buybacks and executive pay over three decades, the SEC has taken a course of action contrary to those objectives. It has enabled the wealthiest 0.1% of society, including top executives, to capture the lion’s share of the gains of U.S. productivity growth while the vast majority of Americans have been left behind. Rule 10b-18, in particular, has facilitated a rigged stock market that, by permitting the massive distribution of corporate cash to shareholders, has undermined capital formation, including human capital formation.

The corporate resource allocation process is America’s source of economic security or insecurity, as the case may be. If Americans want an economy in which corporate profits result in shared prosperity, the buyback and executive compensation binges will have to end. As with any addiction, there will be withdrawal pains. But the best executives may actually get satisfaction out of being paid a reasonable salary for allocating resources in ways that sustain the enterprise, provide higher standards of living to the workers who make it succeed, and generate tax revenues for the governments that provide it with crucial inputs.

A version of this article appeared in the September 2014 issue of Harvard Business Review.

Key Sources of Research:

Buybacks Around the World
Market Timing, Governance and Regulation

Alberto Manconi Urs Peyer Theo Vermaelen
September 2015

https://knowledge.insead.edu/sites/www.insead.edu/files/images/1bb_around_the_world_revised_-_september_8_2015-2.pdf

 

 

EXPLOITING EXCESS RETURNS FROM SHARE BUYBACK ANNOUNCEMENTS

White Paper by Catalyst Capital Advisors

http://www.catalystmutualfunds.com/i/u/6149790/f/Catalyst_Buyback_Strategy_White_Paper_2013-12-31.pdf

 

 

BUYBACKS: FROM BASICS TO POLITICS

WILLIAM LAZONICK
The Academic-Industry Research Network

August 19, 2015

http://www.theairnet.org/v3/backbone/uploads/2015/08/Lazonick-Buybacks-Basics-to-Politics-20150819.pdf

 

Investment Opportunities and Share Repurchases

Walter I. Boudry*
Jarl G. Kallberg
Crocker H. Liu

Current Version: 08 September 2009

http://scholarship.sha.cornell.edu/cgi/viewcontent.cgi?article=1503&context=articles

 

The savvy executive’s guide to buying back shares

By Bin Jiang and Tim Koller
Mckinsey
2011

https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-savvy-executives-guide-to-buying-back-shares

 

 

The Real Effects of Share Repurchases

Heitor Almeida, Vyacheslav Fos, and Mathias Kronlund
University of Illinois at Urbana-Champaign

October 22, 2014

https://business.illinois.edu/halmeida/repo.pdf

 

Buybacks and the board: Director perspectives on the share repurchase revolution

Richard Fields, Tapestry Networks
August 2016

https://irrcinstitute.org/wp-content/uploads/2016/08/FINAL-Buybacks-Report-Aug-22-2016.pdf

 

 

 

The Cannibalized Company Part 2

How the cult of shareholder value has reshaped corporate America

By Karen Brettell, David Gaffen and David Rohde

http://www.reuters.com/investigates/special-report/usa-buybacks-pay/

 

 

The Cannibalized Company Part 1

How the cult of shareholder value has reshaped corporate America

By Karen Brettell, David Gaffen and David Rohde

http://www.reuters.com/investigates/special-report/usa-buybacks-cannibalized/

 

 

Corporate Buybacks and Capital Investment: An International Perspective

Joseph W. Gruber and Steven B. Kamin

20017

https://www.federalreserve.gov/econres/notes/ifdp-notes/corporate-buybacks-and-capital-investment-an-international-perspective-20170411.htm

 

 

The Case for Stock Buybacks

SEPTEMBER 15, 2017

https://hbr.org/2017/09/the-case-for-stock-buybacks

 

 

Profits Without Prosperity

FROM THE SEPTEMBER 2014 ISSUE

https://hbr.org/2014/09/profits-without-prosperity

 

 

Stock buybacks: From retain-and- reinvest to downsize-and-distribute

By William Lazonick

2015

 

https://www.brookings.edu/wp-content/uploads/2016/06/lazonick.pdf

Stock Market Indicators: S&P 500 Buybacks & Dividends

 

https://www.yardeni.com/pub/buybackdiv.pdf

 

 

 

 Buyback Quarterly

FACTSET
20016

https://insight.factset.com/hubfs/Buyback%20Quarterly/Buyback%20Quarterly%20Q3%202016_12.19.pdf

https://www.factset.com/websitefiles/PDFs/buyback

 

The Ugly Truth Behind Stock Buybacks

https://www.forbes.com/sites/aalsin/2017/02/28/shareholders-should-be-required-to-vote-on-stock-buybacks/#13b556ce6b1e

Understanding Trade in Intermediate Goods

Understanding Trade in Intermediate Goods

 

One of the key source of International Trade statistics is a document published by the UNCTAD since 2013:

Key Statistics and Trends in International Trade

Please see references below to access reports for 2015 and 2016.

 

In 2014, out of USD 18.5 trillion in global trade, about USD 8 trillion was in intermediate goods.

 

From TRADE IN INTERMEDIATE GOODS AND SERVICES

Introduction: the international dimension of the exchange of intermediate inputs

1. Trade in intermediate inputs has been steadily growing over the last decade. However, despite the internationalisation of production and the increasing importance of outsourcing and foreign investment, some studies have found little rise in intermediate goods trade as a share of total trade1. More than half of goods trade is however made up of intermediate inputs and trade in services is even more of an intermediate type with about three quarters of trade flows being comprised of intermediate services. Trade in intermediate goods and services thus deserves special attention from trade policymakers and so far few studies have investigated how it differs from trade in consumption goods or services.

2. An intermediate good can be defined as an input to the production process that has itself been produced and, unlike capital, is used up in production3. The difference between intermediate and capital goods lies in the latter entering as a fixed asset in the production process. Like any primary factor (such as labour, land, or natural resources) capital is used but not used up in the production process4. On the contrary, an intermediate good is used, often transformed, and incorporated in the final output. As an input, an intermediate good has itself been produced and is hence defined in contrast to a primary input. As an output, an intermediate good is used to produce other goods (or services) contrary to a final good which is consumed and can be referred to as a “consumption good”.

3. Intermediate inputs are not restricted to material goods; they can also consist of services. Thelatter can be potentially used as an input to any sector of the economy; that is for the production of the same, or other services, as well as manufacturing goods. Symmetrically, manufacturing goods can be potentially used to produce the same, or other manufacturing goods, as well as services.

4. An important question we can ask is how to identify inputs among all goods and services produced in an economy. Many types of goods can be easily distinguished as inputs, when their use excludes them from final consumption. Notable examples include chemical substances, construction materials, or business services. The exact same type of good used as an input to some production process can however be destined to consumption. For instance, oranges can be sold to households as a final good, as well as to a factory as an input for food preparation. Telecommunication services can be sold to individuals or to business services firms as an intermediate input for their output. The United Nations distinguish commodities in each basic heading on the basis of the main end-use (United Nations, 2007). It is however recognized that many commodities that are traded internationally may be put to a variety of uses. Other methodologies involve the use of input-output (I-O) tables to distinguish between intermediate and consumption goods.

5. The importance of intermediate goods and services in the economy and trade is associated with a number of developments in the last decades. Growth and increased sophistication of production has given birth to strategies involving fragmentation and reorganisation of firm’s activities, both in terms of ownership boundaries, as in terms of the location for production. In what follows, the international dimension of the exchange of intermediate goods and services is explored by clarifying terms and concepts as well as the links between trade in intermediate inputs and FDI.

From Key Statistics and Trends in International Trade 2015

inter8

 

From Key Statistics and Trends in International Trade 2015

inter2

 From Key Statistics and Trends in International Trade 2015

inter3

From Key Statistics and Trends in International Trade 2015

inter4

From Key Statistics and Trends in International Trade 2015

inter

From Key Statistics and Trends in International Trade 2015

inter5

From Key Statistics and Trends in International Trade 2015

inter6

From Key Statistics and Trends in International Trade 2015

inter7

From Key Statistics and Trends in International Trade 2015

Trade networks relating to global value chains have evolved during the last 10 years. In 2004, the East Asian production network was still in its infancy. Most trade flows of parts and components concerned the USA and the European Union, with a number of other countries loosely connected with these two main hubs. As of 2014 trade of parts and components was much more developed. The current state is characterized not only by the prominent role of China, but also by a much more tightly integrated network with a much larger number of countries many of which have multiple connections to different hubs.

From Mapping Global Value Chains: Intermediate Goods Trade and Structural Change in the World Economy

inter10inter11inter12

Key sources of Research:

 

TRADE IN INTERMEDIATE GOODS AND SERVICES

OECD Trade Policy Working Paper No. 93
by Sébastien Miroudot, Rainer Lanz and Alexandros Ragoussis

2009

https://www.oecd.org/trade/its/44056524.pdf

 

 

An Essay on Intra-Industry Trade in Intermediate Goods

Rosanna Pittiglio

2014

http://file.scirp.org/pdf/ME_2014051916452646.pdf

 

 

The Rise of International Supply Chains: Implications for Global Trade

http://www3.weforum.org/docs/GETR/2012/GETR_Chapter1.2.pdf

 

 

 

Growing Trade in Intermediate Goods: Outsourcing, Global Sourcing or Increasing
Importance of MNE Networks?

by
Jörn Kleinert
October 2000

https://www.ifw-kiel.de/ifw_members/publications/growing-trade-in-intermediate-goods-outsourcing-global-sourcing-or-increasing-importance-of-mne-networks/kap1006.pdf

 

 

 

Imported Inputs and the Gains from Trade

Ananth Ramanarayanan
University of Western Ontario
September, 2014

https://www.economics.utoronto.ca/index.php/index/research/downloadSeminarPaper/49816

 

 

 

Key Statistics and Trends in International Trade 2015

Division on International Trade in Goods and Services, and Commodities
United Nations Conference on Trade and Development

http://unctad.org/en/PublicationsLibrary/ditctab2015d1_en.pdf

 

 

 

Key Statistics and Trends in International Trade 2016

Division on International Trade in Goods and Services, and Commodities
United Nations Conference on Trade and Development

http://unctad.org/en/PublicationsLibrary/ditctab2016d3_en.pdf

 

 

Integration of Trade and Disintegration of Production in the Global Economy

Robert C. Feenstra
Revised, April 1998

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.39.7178&rep=rep1&type=pdf

 

 

 

GLOBAL VALUE CHAINS: CHALLENGES, OPPORTUNITIES, AND IMPLICATIONS FOR POLICY

OECD, WTO and World Bank Group
Report prepared for submission to the G20 Trade Ministers Meeting Sydney, Australia, 19 July 2014

https://www.oecd.org/tad/gvc_report_g20_july_2014.pdf

 

 

Trade in Value Added: Concepts, Estimation and Analysis

Marko Javorsek* and Ignacio Camacho

20015

http://www.unescap.org/sites/default/files/AWP150Trade%20in%20Value%20Added.pdf

 

 

The Similarities and Differences among Three Major Inter-Country Input-Output Databases and their Implications for Trade in Value-Added Estimates

Lin Jones and Zhi Wang, United States International Trade Commission Li Xin, Beijing Normal University and Peking University Christophe Degain, World Trade Organization

December, 2014

https://www.usitc.gov/publications/332/ec201412b.pdf

 

 

Advanced Topics in Trade
Lecture 9 – Multinational Firms and Foreign Direct Investment

Heiwai Tang – SAIS
April 8, 2015

http://www.hwtang.com/uploads/3/0/7/2/3072318/lecture_8_new.pdf

 

 

Efforts to Measure Trade in Value-Added and Map Global Value Chains: A Guide

Andrew Reamer

May 29, 2014

https://gwipp.gwu.edu/files/downloads/Reamer_ISA_Trade_in_Value_Added_05-29-2014.pdf

 

 

 

Global Value Chains for Value Added and Intermediate Goods in Asia

N Shrestha

20015

http://www.econ.ynu.ac.jp/cessa/publication/pdf/CESSA%20WP%202015-07.pdf

 

 

 

Global Value Chains: The New Reality of International Trade

Sherry Stephenson
December 2013

http://e15initiative.org/wp-content/uploads/2015/09/E15-GVCs-Stephenson-Final.pdf

 

 

Asia and Global Production Networks Implications for Trade, Incomes and Economic Vulnerability

Benno Ferrarini

David Hummels

20014

https://www.adb.org/sites/default/files/publication/149221/asia-and-global-production-networks.pdf

 

 

Participation of Developing Countries in Global Value Chains:
Implications for Trade and Trade-Related Policies

by
Przemyslaw Kowalski, Javier Lopez Gonzalez, Alexandros Ragoussis
and Cristian Ugarte

https://www.die-gdi.de/uploads/media/OECD_Trade_Policy_Papers_179.pdf

 

 

GLOBAL VALUE CHAINS: SURVEYING DRIVERS, MEASURES AND IMPACTS

João Amador
Sónia Cabral

2014

https://www.bportugal.pt/sites/default/files/anexos/papers/wp20143.pdf

 

World Intermediate goods Exports By Country and Region

2014

WITS World International Trade Statistics

http://wits.worldbank.org/CountryProfile/en/Country/WLD/Year/2014/TradeFlow/Export/Partner/all/Product/UNCTAD-SoP2

 

 

Trade in global value chains

2013

WTO

https://www.wto.org/english/res_e/statis_e/its2013_e/its13_highlights4_e.pdf

 

 

The Rise of Trade in Intermediates: Policy Implications

  • February 10, 2011

http://carnegieendowment.org/2011/02/10/rise-of-trade-in-intermediates-policy-implications-pub-42578

 

 

International trade with intermediate and final goods under economic crisis

Elżbieta Czarny, Warsaw School of Economics
Paweł Folfas, Warsaw School of Economics
Katarzyna Śledziewska, Warsaw University

http://www.etsg.org/ETSG2012/Programme/Papers/375.pdf

 

 

 

Trade in Intermediate Goods: Implications for Productivity and Welfare in Korea

Young Gui Kim

Hak K. PYO

Date Written: December 30, 2016

 

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2929118

 

 

Growing Together: Economic Ties between the United States and Mexico

BY CHRISTOPHER WILSON

https://www.wilsoncenter.org/sites/default/files/growing_together_economic_ties_between_the_united_states_and_mexico.pdf

 

 

Mapping Global Value Chains: Intermediate Goods Trade and Structural Change in the World Economy

Timothy J. Sturgeon
Olga Memedovic

https://www.unido.org/fileadmin/user_media/Publications/Research_and_statistics/Branch_publications/Research_and_Policy/Files/Working_Papers/2010/WP%2005%20Mapping%20Glocal%20Value%20Chains.pdf

 

India’s Intermediate Goods Trade in the Inter Regional Value Chain:
An examination based on Trade data and Input Output Analysis

Simi Thambi

https://www.jsie.jp/Annual_Meeting/2013f_Yokohoma_n_Univ/pdf/10_2%20fp.pdf

 

Global Supply Chains

https://www.usitc.gov/publications/332/pub4253_2.pdf

 

 

Global value chains in a changing world

Edited by Deborah K. Elms and Patrick Low

https://www.wto.org/english/res_e/booksp_e/aid4tradeglobalvalue13_e.pdf

 

Boundary Spanning in Multinational and Transnational Corporations

Boundary Spanning in Multinational and Transnational Corporations

What are:

  • Boundaries
  • Boundary Spanners
  • Gate Keepers

How do Boundaries evolve?

How do we coordinate and manage across Boundaries?

 

From BOUNDARY SPANNING IN GLOBAL ORGANIZATIONS

BACKGROUND TO SPECIAL ISSUE

Global organizations are inherently complex. Rapidly developing emerging markets and increasing spatial dispersion of innovative activities coupled with digital convergence create the need for continuously developing new ways of coordinating, organizing, and re-configuring of organizational structures and routines across inter and intra-organizational boundaries.

Early studies discussed the roles of gatekeepers in the context of technology transfer between different departments or functional areas within organizations. In more recent research, one stream has explored the role of boundary objects as contextual aids for cross-boundary knowledge sharing. A complementary stream has begun to investigate individuals as boundary spanners and their roles in effectively operating across complex inter- and intra-organizational, socio-cultural and geographic boundaries. Individuals are the nested antecedent to organizational level actions and therefore deserve careful theoretical and empirical deliberation.

Existing research on boundary spanning is mainly conceptual or based on a limited number of case studies. The research suggests that a small number of managers with unique skill sets or personality traits have emerged as critical facilitators for cross-boundary coordination. Boundaries can be both explicit as between parents and subsidiaries of multinational enterprises, and also implicit as between line managers and top management. For example, middle managers have been argued to perform the role of boundary spanners between line managers and top management in a general organizational context. A delineation of explicit and implicit boundaries across organizational subunits as well as within organizational subunits is important to understand the boundary spanning function.

From a managerial perspective, little is known about the characteristics of boundary spanners and whether their capabilities are inherent or can be developed. Although the literature has provided some useful insights, most existing research treats the individual actors and the organizational environment as two discrete dimensions. Further, the boundary-spanning role is essentially associated with structural holes and bridging ties, so key questions arise as to how they affect organizations and organizational capabilities, and how organizational structures foster or hinder boundary spanning.

From an organizational architecture perspective little is known about the specificities of boundaries and how they manifest themselves other than those that are explicit in the form of hierarchies, functional domains, or geographic territories. In global organizations, organizational subunits often become embedded in geographical contexts that differ in terms of culture, institutions, language, etc. These organizational realities create implicit boundaries in many dimensions, e.g., cultural and psychic distance, institutional incompatibilities as well as linguistic issues that may be labeled “lost in translation”. The boundary spanning function in such organizations includes a wide range of coordination mechanisms, which need to be explored in greater detail.

The boundary spanning phenomenon provides an opportunity for moving beyond emblematic borrowing of individual level theories and applying them to organizational level research. This will move the research agenda toward addressing both micro-macro linkage and macro-micro linkages systematically, thus substantially advancing theory.

With this special issue we seek to connect different, though loosely related research domains. The buoying microfoundations of strategy discussion, research on strategy as practice, and behavioral strategy could be particularly fertile areas for such an approach. In addition, this special issue seeks to foster cross- fertilization from and between different epistemological orientations. This includes research in the areas of industrial and organizational psychology and behavioral economics, among others.

TYPES OF SUBMISSION SOLICITED

Building on extant research, we seek contributions that either add empirical insights or/and advance theory building regarding the boundary spanning functions in global organizations as well as the characteristics, development and roles of boundary spanners, a special type of manager that allows organizations to manage more effectively across intra- and inter-organizational boundaries.

We are interested in theoretical, empirical and analytical submissions. We welcome submissions that address both, organizational and managerial based approaches to boundary spanning.

The submission to this special issue must go beyond anecdotal descriptions of the phenomenon and represent a substantial contribution to theory development. The topics that the special issue intends to cover include (but are not limited to):

Definition: What are explicit and implicit boundaries, how do they manifest themselves materially, contextually, intellectually, perceptually and from a structural and/or managerial coordination perspective?

Evolution of boundaries: How do boundaries arise, become entrenched in some circumstances and dissolve in others? To what extent do boundaries evolve dynamically over time and how do boundary- spanning roles emerge? How can analyses of boundaries improve our understanding of conflicts and conflict resolution in general?

Organizational versus managerial level of analysis: Is boundary spanning an organizational capability or a managerial skill or both? What is the role of management in either fostering or hindering boundary spanning? What are managerial or individual boundary spanning skills and how are they developed? How can our understanding of well-known organizational functions (middle managers, staff vs. line managers, etc.) be improved using an analysis of boundaries?

Boundary spanning, a cause or effect: Is the boundary spanning function a cause or an effect? In some contexts, the boundary spanning function could be an outcome of particular forms of organizational values or structures, while in others it could be a means of creating and reinforcing them.

Boundary spanning versus boundary setting: Is boundary spanning always a good thing? Are there situations in which boundary setting (and the associated specialization) is more important than boundary spanning?

Boundary spanners versus gatekeepers: What are the individual, functional and conceptual similarities that boundary spanners and gatekeepers share with each other? What are the differences that distinguish them from each other?

Organizational adaption: How do global organizations adapt over time to new boundary challenges and what are the organizational structures that make boundary spanners more or less effective?

Intra versus inter organizational perspective: Are there fundamental differences between “inter” and “intra” organizational boundary spanning activities? How does boundary spanning relate to the dialectical process of change implementation (theses) and resistance to change (antitheses) in complex/global organizations?

Role of external context in boundary spanning: In global organizations, organizational subunits often become embedded in geographical contexts that differ in terms of culture, institutions, language, etc. How do these differences affect the boundary spanning function as well as the effectiveness of boundary spanners?

From BOUNDARY SPANNING IN GLOBAL ORGANIZATIONS

What are Boundaries?

Early research defined boundaries as distinctive lines that separate what is within an organization and what is in the external environment with which it interacts (Aldrich and Herker 1977; Friedman and Podolny, 1992). Thus a boundary defines an entity. But boundaries also exist within organizations, either in the form of clearly defined subunits, like MNE HQs and their dispersed subsidiaries, or less clearly defined boundaries, based on, for example, different cultures, demographics, and professions. In organization theory, seminal works from both the economics (Coase, 1937) as well as the sociology (Weick, 1995) paradigms view boundary definition as a core function as well as an essential property. In classical transaction cost economics, the firm’s fundamental decision is to decide what activities are undertaken within its boundaries and what activities are implemented through market transactions (Williamson, 1979; Gibbons, 1999). In the theory of sense-making, an organization is identified in terms of those who share a common identity, often operationalized through their understanding of the external environment (Weick, 1988; 1995).

These two pillars of organization theory provide us with complementary perspectives on the nature of boundaries. The economics perspective is based on an external, explicitly defined notion of legal ownership; the boundary distinguishes between what the organization owns and what it does not (Demsetz, 1983). The sociology perspective is based on an internal, tacit notion of belonging (Durkheim, 1938) whereby the boundary appears between those who identify with the organization and those who do not.

The complementarity of these two perspectives is evident from that fact that they generate co-evolutionary, dynamic boundary drivers. Common ownership often underpins the creation of routines and operating procedures that build common syntax and semantics which eventually result in a common basis of sense-making. A strong organizationally derived identity – as seen in “corporate culture” (Guiso et al, 2015) or “political culture” (Mudambi and Navarra, 2003) – often drives acquisition and location decisions that result in common ownership.

Both economics-based and sociology-based boundaries are intangible, but they often give rise to tangible structures like national borders, factory gates and other physical boundary markers (Hernes, 2004). However, these are merely representations of the underlying reality that is based on the complementary notions of boundaries. It is possible that over time, physical edifices may strengthen boundaries, but they rarely create them.

Key sources of Research:

Exploring the Role of Boundary Spanning in Distributed Networks of Knowledge

Eli Hustad and Aurilla Aurelie Bechina

 

 

The Importance of Boundary-Spanners in Global Supply Chains and Logistics Management in the 21st Century

Timothy Kiessling Michael Harvey Garry Garrison

 

http://faculty.mu.edu.sa/public/uploads/1357370196.704415399747.pdf

 

 

Boundary Spanning in Global Organizations

Andreas P. J. Schotter

Ram Mudambi

Yves L. Doz

16 January 2017

https://www.researchgate.net/profile/Andreas_Schotter/publication/312477172_Boundary_Spanning_in_Global_Organizations/links/58a46f0eaca27206d978705c/Boundary-Spanning-in-Global-Organizations.pdf

http://onlinelibrary.wiley.com/doi/10.1111/joms.12256/full

https://globaledge.msu.edu/content/uploads/boundary-spanners-special-issue-call.pdf

Boundary spanning behaviors of expatriates

Kevin Y. Au, John Fukuda

Journal of World Business, 37, 285-296.

2002

 

 

Global Mobility Policies, Social Positioning and the Boundary Spanning Work of Expatriate Managers

 

http://www.uni-bielefeld.de/soz/ab10/bi.was/Mense-Petermann_Spiegel-2016.pdf

 

 

Crowding at the frontier: knowledge brokers, gatekeepers, boundary spanners and marginal-intersecting individuals

Aurore Haas

 

http://www.strategie-aims.com/events/conferences/24-xxiiieme-conference-de-l-aims/communications/3164-crowding-at-the-frontier-a-review-of-gatekeepers-and-boundary-spanners/download

 

 

Boundary Spanning Leadership: Tactics to Bridge Social Identity Groups in Organizations

Chris Ernst and Jeffrey Yip

 

http://www.jeffreyyip.net/uploads/1/6/7/8/16787140/boundary_spanning_leadership.pdf

 

Boundary Spanning Leadership

Mission Critical Perspectives from the Executive Suite

 

Loosely Coupled Systems: A Reconceptualization

Orton, J. Douglas; Weick, Karl E.
Academy of Management. The Academy of Management Review; Apr 1990;

http://dimetic.dime-eu.org/dimetic_files/OrtonWeickAMR1990.pdf

Beyond brokering: Sourcing agents, boundary work and working conditions in global supply chains

 

January 17, 2017

http://journals.sagepub.com/doi/pdf/10.1177/0018726716684200

 

 

BEYOND BOUNDARY SPANNERS: THE ‘COLLECTIVE BRIDGE’ AS AN EFFICIENT INTERUNIT STRUCTURE FOR TRANSFERRING COLLECTIVE KNOWLEDGE

ZHENG JANE ZHAO and JAIDEEP ANAND

School of Business, University of Kansas, Lawrence, Kansas, U.S.A. 2 Fisher College of Business, Ohio State University, Columbus, Ohio, U.S.A.

2013

https://www.academia.edu/30068422/Beyond_Boundary_Spanners_The_Collective_Bridge_as_an_Efficient_Interunit_Structure_for_Transferring_Collective_Knowledge

 

 

A MULTILEVEL PERSPECTIVE ON KNOWLEDGE TRANSFER: EVIDENCE FROM THE CHINESE AUTOMOTIVE INDUSTRY

ZHENG JANE ZHAO and JAIDEEP ANAND

2009

School of Business, University of Kansas, Lawrence, Kansas, U.S.A. 2 Fisher College of Business, Ohio State University, Columbus, Ohio, U.S.A.

https://www.academia.edu/30068443/A_multilevel_perspective_on_knowledge_transfer_evidence_from_the_Chinese_automotive_industry

 

 

FROM CORE TO PERIPHERY AND BACK: A STUDY ON THE DELIBERATE SHAPING OF KNOWLEDGE FLOWS IN INTERFIRM DYADS AND NETWORKS

ANDREA LIPPARINI, GIANNI LORENZONI, and SIMONE FERRIANI

Department of Management, University of Bologna, Bologna, Italy 2 Cass Business School, City University London, London, U.K.

2013

https://www.academia.edu/19192371/From_core_to_periphery_and_back_A_study_on_the_deliberate_shaping_of_knowledge_flows_in_interfirm_dyads_and_networks

 

 

NETWORK STRUCTURE AND INNOVATION: THE LEVERAGING OF A DUAL NETWORK AS A DISTINCTIVE RELATIONAL CAPABILITY

ANTONIO CAPALDO* Catholic University of the Sacred Heart, Milan, Italy

2007

https://www.academia.edu/414380/Capaldo_A._2007._Network_Structure_and_Innovation_The_Leveraging_of_a_Dual_Network_As_a_Distinctive_Relational_Capability._Strategic_Management_Journal_28_6_585-608

 

Low Interest Rates and Business Investments : Update August 2017

Low Interest Rates and Business Investments : Update August 2017

 

From  Explaining Low Investment Spending

USINVEST

globalinvest

 

Please see my earlier posts.

Business Investments and Low Interest Rates

Mergers and Acquisitions – Long Term Trends and Waves

The Decline in Long Term Real Interest Rates

Short term Thinking in Investment Decisions of Businesses and Financial Markets

Low Interest Rates and Monetary Policy Effectiveness

Low Interest Rates and Banks’ Profitability : Update July 2017

Low Interest Rates and Banks Profitability: Update – December 2016

 

Since my earlier posts on this subject there has been several new studies published highlighting weakness in business investments as one of the cause of slower economic growth and lower interest rates.

Other significant factors impacting interest rates are demographic changes, and slower economic growth.

I argue that there is mutual (circular) causality in weak business investment, slower economic growth, and lower interest rates which reinforce each other.

 

Decreased competition, increased concentration, corporate savings glut, share buybacks, paying dividends are also identified as factors.

Number of public companies have decreased significantly in USA since 1996 due to M&A activity.   See the data below.

Increased Mergers/Acquisitions, Increased Concentration, Decreased Competition, Decreased Number of Public Companies, Share buybacks, and Dividend Payouts are multiple perspectives of same problem.

 

From The Incredible Shrinking Universe of Stocks

The Causes and Consequences of Fewer U.S. Equities

USNUMUSSTAT

 

Key sources of Research:

The Low Level of Global Real Interest Rates

Remarks by
Stanley Fischer
Vice Chairman
Board of Governors of the Federal Reserve System

at the
Conference to Celebrate Arminio Fraga’s 60 Years
Casa das Garcas, Rio de Janeiro, Brazil

July 31, 2017

The Low Level of Global Real Interest Rates

 

 

INVESTMENT-LESS GROWTH: AN EMPIRICAL INVESTIGATION

German Gutierrez Thomas Philippon

Working Paper 22897

NATIONAL BUREAU OF ECONOMIC RESEARCH

1050 Massachusetts Avenue
Cambridge, MA 02138

December 2016

 

INVESTMENT-LESS GROWTH: AN EMPIRICAL INVESTIGATION

 

 

Explaining Low Investment Spending

The NBER Digest
NATIONAL BUREAU OF ECONOMIC RESEARCH

February 2017

Explaining Low Investment Spending

 

 

The Secular Stagnation of Investment?

Callum Jones and Thomas Philippon

December 2016

 

The Secular Stagnation of Investment?

 

 

Is there an investment gap in advanced economies? If so, why?

By Robin Dottling, German Gutierrez and Thomas Philippon

 

Is there an investment gap in advanced economies? If so, why?

 

 

The Disappointing Recovery of Output after 2009

JOHN G. FERNALD ROBERT E. HALL

JAMES H. STOCK MARK W. WATSON

May 2, 2017

The Disappointing Recovery of Output after 2009

 

 

Declining Competition and Investment in the U.S.

German Gutierrez and Thomas Philippon

NATIONAL BUREAU OF ECONOMIC RESEARCH

July 2017

 

Declining Competition and Investment in the U.S

 

 

Real Interest Rates Over the Long Run : Decline and convergence since the 1980s

Kei-Mu Yi   Jing Zhang

ECONOMIC POLICY PAPER 16-10 SEPTEMBER 2016

FEDERAL RESERVE BANK of MINNEAPOLIS

Real Interest Rates over the Long Run Decline and convergence since the 1980s, due significantly to factors causing lower investment demand

 

 

Understanding global trends in long-run real interest rates

Kei-Mu Yi and Jing Zhang

Economic Perspectives, Vol. 41, No. 2, 2017
Chicago Fed Reserve Bank

 

Understanding Global Trends in Long-run Real Interest Rates

 

 

Weakness in Investment Growth: Causes, Implications and Policy Responses

CAMA Working Paper 19/2017 March 2017

M. Ayhan Kose

Franziska Ohnsorge

Lei Sandy Ye

Ergys Islamaj

 

Weakness in Investment Growth: Causes, Implications and Policy Responses

 

 

Are US Industries Becoming More Concentrated?

Gustavo Grullon, Yelena Larkin and Roni Michaely

October 2016

 

Are US Industries Becoming More Concentrated?

 

 

Why Is Global Business Investment So Weak? Some Insights from Advanced Economies

 

Robert Fay, Justin-Damien Guénette, Martin Leduc and Louis Morel,

International Economic Analysis Department

Bank of Canada Review Spring 2017

 

Why Is Global Business Investment So Weak? Some Insights from Advanced Economies

 

 

What Is Behind the Weakness in Global Investment?

by Maxime Leboeuf and Bob Fay

2016

Bank of Canada

 

What Is Behind the Weakness in Global Investment?

 A Structural Interpretation of the Recent Weakness in Business Investment

by Russell Barnett and Rhys Mendes

 The Corporate Saving Glut in the Aftermath of the Global Financial Crisis

 

Gruber, Joseph W., and Steven B. Kamin

International Finance Discussion Papers
Board of Governors of the Federal Reserve System
Number 1150 October 2015

 

The Corporate Saving Glut in the Aftermath of the Global Financial Crisis

 

 

The Incredible Shrinking Universe of Stocks

The Causes and Consequences of Fewer U.S. Equities

March 22, 2017

GLOBAL FINANCIAL STRATEGIES

http://www.credit-suisse.com

 

The Incredible Shrinking Universe of Stocks The Causes and Consequences of Fewer U.S. Equities

 

 

They Just Get Bigger: How Corporate Mergers Strangle the Economy

Jordan Brennan

2017 February 19

They Just Get Bigger: How Corporate Mergers Strangle the Economy

 

 

Rising Corporate Concentration, Declining Trade Union Power, and the Growing Income Gap: American Prosperity in Historical Perspective

Jordan Brennan

March 2016

 

Rising Corporate Concentration, Declining Trade Union Power, and the Growing Income Gap: American Prosperity in Historical Perspective

 

 

The Oligarchy Economy: Concentrated Power, Income Inequality, and Slow Growth

Corporate concentration exacerbates income inequality

 

Jordan Brennan

March 2016

http://evonomics.com/the-oligarchy-economy/

Low Interest Rates and Banks’ Profitability : Update July 2017

Low Interest Rates and Banks’ Profitability : Update July 2017

 

Please see my previous posts.

Impact of Low Interest Rates on Bank’s Profitability

Low Interest Rates and Banks Profitability: Update – December 2016

 

Since December 2016, there are several new studies published which study low interest rates and Banks profitability.

 

 

Liberty State economics – a Blog of New York Federal Reserve has published a new column in June 2017.

Low Interest Rates and Bank Profits

 

 

Reduced Viability? Banks, Insurance Companies, and Low Interest Rates

CFA Institute

2016

CFA Institute Blog: Low Interest Rates and Banks

 

 

Changes in Profitability for Primary Dealers since the Financial Crisis

Benjamin Allen

Skidmore College

2017

Changes in Profitability for Primary Dealers since the Financial Crisis

 

 

Deloitte Consulting has published a new report in 2017 on Bank Models viability in environment of low interest rates.

Business model analysis European banking sector model in question

 

THE EFFECT OF NEGATIVE INTEREST RATES ON EUROPEAN BANKING
July 7, 2016
International banker

 

https://internationalbanker.com/banking/effect-negative-interest-rates-european-banking/

 

 

Low interest rates place a strain on the banks

bank of Finland

2016

https://www.bofbulletin.fi/en/2016/2/low-interest-rates-place-a-strain-on-the-banks/

 

 

The profitability of EU banks: Hard work or a lost cause?

KPMG

October 2016

 

https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2016/10/the-profitability-of-eu-banks.pdf

 

 

The influence of monetary policy on bank profitability

Claudio Borio

2017

http://onlinelibrary.wiley.com/doi/10.1111/infi.12104/abstract

 

 

Can Low Interest Rates be Harmful: An Assessment of the Bank Risk-Taking Channel in Asia

2014

Asian Development Bank

 

https://www.adb.org/sites/default/files/publication/31204/reiwp-123-can-low-interest-rates-harmful.pdf

 

 

Determinants of bank’s interest margin in the aftermath of the crisis: the effect of interest rates and the yield curve slope

Paula Cruz-García, Juan Fernández de Guevara and Joaquín Maudos

 

http://www.uv.es/inteco/jornadas/jornadas13/Cruz-Garcia,%20Fernandez%20and%20Maudos_XIII%20Inteco%20Workshop.pdf

 

 

Dutch Central Bank has published a new study in November of 2016 on Banks’ Profitability and risk taking in a prolonged environment of Low Interest Rates.

Bank profitability and risk taking in a prolonged environment of low interest rates: a study of interest rate risk in the banking book of Dutch banks

 

 

Net interest margin in a low interest rate environment: Evidence for Slovenia

Net interest margin in a low interest rate environment: Evidence for Slovenia

 

Global Financial Stability Report, April 2017: Getting the Policy Mix Right

IMF

2017

IMF Global Financial Stability Report April 2017

 

 

Negative Interest Rates: Forecasting Banks’ Profitability in a New Environment

Stefan Kerbl, Michael Sigmund

Bank of Finland

Negative Interest Rates: Forecasting Banks’ Profitability in a New Environment

 

 

Low Interest Rates and the Financial System

Remarks by Jerome H. Powell
Member Board of Governors of the Federal Reserve System
at the 77th Annual Meeting of the American Finance Association
Chicago, Illinois
January 7, 2017

https://www.federalreserve.gov/newsevents/speech/powell20170107a.pdf

 

 

Bad zero: Financial Stability in a Low Interest Rate Environment

Elena Carletti  Giuseppe Ferrero

18 June 2017

https://www.dnb.nl/en/binaries/paper%20Carletti_Ferrero_18June2017_tcm47-360758.pdf