Research Handbooks in Corporate Law and Governance series
Edited by Claire A. Hill and Steven Davidoff Solomon
Chapter 19: Short- and long-term investors (and other stakeholders too): must (and do) their interests conflict?
In this chapter, we discuss how to reconcile orthodox theory’s tenet that markets correctly value a company’s prospects, no matter how far in the future they are, so that short- and long-term shareholders’ interests should be the same, with the contrary view, held by many commentators, that the interests are in conflict, and that short-term investors have pressured companies to take actions that further the short term at the expense of the long term. We consider reasons why that theory might be wrong, and make some suggestions for ways to proceed. In our view, there is plausible, and perhaps sufficient, evidence of a problem from shareholders’ perspective – corporations may indeed be shunning some potentially higher-yielding long-term strategies, emphasizing instead the short-term strategies that yield cash and savings in the short term. There may be a problem from the societal perspective as well, which is separate from but related to the question of short-term strategies. The market may be addressing the shareholder problem, although perhaps not sufficiently, and probably not sufficiently quickly. The societal problem, the underprovision of public goods, and the imposition of negative externalities, is far trickier to address. We offer some suggestions which might help on both fronts. That being said, in some cases, the conflict between a shareholder value maximization perspective and a societal perspective may be intractable.
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.