How the pursuit of shareholder value weakened the economy

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3) It hasn't produced an investment boom

In fact quite the contrary:

Since 1980, U.S. investment as a percentage of GDP was sliced in half, from nearly 24 percent to 12 percent, leaving the United States 174th in the world. The result was a dearth of real value added products and productivity.

While there is no definite evidence that the change in corporate governance is the main culprit here, nevertheless there are a few indications:

• Companies care more about meeting the quarterly earnings reports, as the effect on share prices directly influences executive pay.
  
• Investment decisions have a tendency to shift towards projects with a shorter term horizon and more certain pay-off.
  
• For the same reason, this tends to put more emphasis on cost cutting, rather than expansion, as the returns on that are more certain and more short-term.
  
• For that reason, it has probably also contributed to the stagnation of real wages.
  

According to William Lazonick we have moved from a retain-and-reinvest model that run until the late 1970s where companies

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.”

But this has given way to a downsize-and-distribute regime which emphasized cost cutting and the distributing the freed-up cash to financial interests. Despite a big increase in the profit share:

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.

Even people like Stanley Druckenmiller are getting concerned:

Capital spending is the lowest it's been relative to sales in many, many years. That's the reason productivity is down. We've got to get out of this financial engineering stuff and get more into investing in the real economy."

Or, from the Washington Post

Over the past decade, more than 90 percent of Fortune 500 corporations’ net earnings have been funneled to investors. The great shareholder shift has affected more than employees’ incomes. As Luke A. Stewart and Robert D. Atkinson noted in a 2013 report for the Information Technology and Innovation Foundation, business investment in equipment, software and buildings increased by just 0.5 percent per year between 2000 and 2011 — “less than a fifth that of the 1980s and less than one-tenth that of the 1990s.”

And

The power of major shareholders to appropriate corporate revenue has grown as the power of workers to win raise increases has dwindled — even though the actual commitment of shareholders to any one corporation has diminished. (In 1960, the average length of time an investor held a stock was eight years; today, it’s four months, and when computerized high-frequency trading is factored in, it’s 22 seconds.) The decimation of private-sector unions has flatly eliminated the ability of large numbers of U.S. workers to bargain collectively for better pay or working conditions. But the ability of financiers to threaten the jobs of corporate managers unless they fork over more cash to shareholders has greatly increased.

And Laurence Fink, CEO of BlackRock:

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.”