Are US corporates creating value?
Capital allocation is a dynamic process and there is no “rule of thumb” for the right allocation of capital. It is every corporate management’s fiduciary responsibility to allocate capital efficiently to build long-term value for its shareholders.
Capital allocation decisions made by corporates involve substantial funds. In this study we cover about $2.7 trillion of capital over 10 years of which some 50% was returned to shareholders in the form of either Share buybacks or dividends, whilst some 50% was spent externally in the form of either capex or M&A.
We have analysed the capital allocation decisions of 100 US-based companies over a 10-year period (2008-2017) and found that only 35 created shareholder value, while others either destroyed or made no difference to shareholder value.