Consequences of Paying High Dividends to Shareholders and/or Share Buybacks on a Firm’s Competitive Advantage

Abstract

Fortune magazine published an article in February 2020 titled, “Boeing’s Long Descent”, regarding Boeing’s focus on paying high dividends to its shareholders at the expense of R&D. If Boeing had not been paying high dividends to its shareholders, it could have invested on R&D which would have been much more beneficial to Boeing in the long run. Is this phenomenon limited just to Boeing or do other firms who pay high dividends to their shareholders do it at the expense of R&D and Marketing which may give them a competitive advantage over other firms (their competitors) in the marketplace. This author thinks that the same principle applies to firms who are involved in share buybacks, i.e., firms who buy back their shares also do so at the expense of R&D and Marketing, thus risking the long-term competitive advantage of the firm.