Economic Snapshot | Trade and Globalization

Income distribution and Wall Street

A weekly presentation of downloadable charts and short analyses designed to graphically illustrate important economic issues. Updated every Wednesday.

Snapshot for December 1, 1999

Income distribution and Wall Street

Since the beginnings of the bull market in 1983, the value of corporate equities has increased nine fold, from $1.9 trillion to $17.1 trillion as of June 1999. In contrast, corporate debt has merely increased three-and-a-half times, from $1.2 trillion to $4.1 trillion. The record growth in equities seems to indicate that the stock market has become a vastly more important source of company financing than traditional venues such as banks, for example.

But rather than a source for new funds, the bullish stock market is a drain on corporate resources. To satisfy institutional investors who are demanding ever-higher stock prices, corporations are buying back more shares than they issue. In the second quarter of 1999 alone, the value of corporate stock “buy backs” exceeded new issues at an annual rate of $354 billion. Similarly, corporations are redistributing a growing share of record-setting profits to dividends, continuing a trend that started in the 1970s. Thus, corporations are left with fewer resources for investments or for employee compensation, while shareholders are handsomely rewarded through rising stock prices and increasing dividend payments.

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