> Paying a few billion dollars to a big pharma company is not going to make them invest more in research. They will instead pay the money out as dividends.
This is a misconception. No investor wants their money back. Investors want a promise of MORE money back in the future. If investors wanted their money back immediately, they wouldn't have bought stock in the first place!
The vast majority of investors prefer (ex: Tesla) a company to spend all their money asap on infrastructure, research, development, etc. etc.
Dividends are a last resort, only to be used if a company doesn't know what to do with its cash. Once a company starts paying dividends, it means that it has run out of ideas for how to invest into the future.
Besides: its more tax efficient to grow the stock price rather than to pay the profits back in cash.
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Even a big company will want to at least appear that it is growing even bigger, through R&D funds and what-not. If you start to give out a lot of dividends, investors will probably take it as a bad sign and flee.
You don't have to pay dividends, you can just do a stock repurchase.
Regarding investor preferences, they only want the money spent if it gives them a positive NPV. Pharma companies are already paying dividends, which means they have funds in excess of their NPV>0 projects, which is why they return them to shareholders.
Hell, half of the shareholder activism literature and the policy payout literature is about CEOs overinvesting and doing empire-building instead of returning the money to shareholders..
> Regarding investor preferences, they only want the money spent if it gives them a positive NPV.
Precisely. And cash rarely gives the best NPV. You put money into companies with the expectation that they make MORE money in the future.
> Pharma companies are already paying dividends, which means they have funds in excess of their NPV>0 projects, which is why they return them to shareholders.
And there you have it. It means that Pharma Companies are making more profits than they know how to reasonably invest into themselves. Which is PRECISELY why people get annoyed at them, especially when they have huge marketing budgets and $800 Epipens.
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There is a Christian Parable about the man with 1 Talent (where Talents were a unit of Gold in the time of Jesus). The man buried his gold, because he was too worried that he'd lose the gold.
The man's peers however invested the money and grew their Talents. The man with 10 Talents had 20 Talents at the end. The Man who started with 5 grew to 10.
The man who buried the gold ended with just 1 Talent (the only one he started with), and was therefore punished. The religious message here is not to hoard your Talents (ie: Gold), but to invest them and grow yourself, and your masters.
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I guess not everyone is a Christian. But if Pharma companies can't figure out where to invest the money, then perhaps they could at least return the money to their customers by lowering the price of their drugs.
Returning the money that they started with is... not growth. Companies are supposed to grow (through new R&D, improvements, etc. etc.).
To be fair, the master in that story was a bit of a jerk.
> You knew that I reap where I have not sown and gather where I scattered no seed?
He took what belonged to others. And, had the servant with 2 talents lost money instead of making it, I doubt the master would have responded to him with "Well, you tried. Good on you."
Paying dividends is not giving investor's their money back. It is paying a return on the investment. Some companies like Amazon espouse the idea of perpetually trying to grow stock price, but that is not what every investor is looking for. Some investors are looking for an investment that will pay dividends every year going on forever.
This depends on the investor.
Stock market investor, the one who's purchase of stock doesn't provide the company with any funds, cares not how income is delivered.
But you're right on one thing - investors want better future prospects, however those are achieved.
This is a misconception. No investor wants their money back. Investors want a promise of MORE money back in the future. If investors wanted their money back immediately, they wouldn't have bought stock in the first place!
The vast majority of investors prefer (ex: Tesla) a company to spend all their money asap on infrastructure, research, development, etc. etc.
Dividends are a last resort, only to be used if a company doesn't know what to do with its cash. Once a company starts paying dividends, it means that it has run out of ideas for how to invest into the future.
Besides: its more tax efficient to grow the stock price rather than to pay the profits back in cash.
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Even a big company will want to at least appear that it is growing even bigger, through R&D funds and what-not. If you start to give out a lot of dividends, investors will probably take it as a bad sign and flee.