Abstract

http://ssrn.com/abstract=2006556
 
 

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Short-Termism, the Financial Crisis, and Corporate Governance


Lynne Dallas


University of San Diego School of Law

February 16, 2012

Journal of Corporation Law, Vol. 37, p. 264, 2011
San Diego Legal Studies Paper No. 12-078

Abstract:     
This article is a comprehensive exploration of why financial and nonfinancial firms engage in short-termism with particular attention given to the financial crisis of 2007-2009. Short-termism, which is also referred to as earnings management (or, alternatively, managerial myopia), consists of the excessive focus of corporate managers, asset managers, investors and analysts on short-term results, whether quarterly earnings or short-term portfolio returns, and a repudiation of concern for long-term value creation and the fundamental value of firms. This article examines market and internal firm dynamics that contribute to short-termism, which requires an examination of various structural, informational, behavioral and incentive problems operating within firms and markets. This article also discusses various regulatory responses to mitigate short-termism, including provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. It is the objective of this article to seek changes that would improve our financial system and prevent a financial meltdown in the future, such as the financial crisis of 2007-2009 that has had such a devastating impact on the U.S. and global economies.

Number of Pages in PDF File: 101

Keywords: short-termism, financial crisis, corporate governance, earnings management, myopia, momentum reading, high frequency trading, short-term trading, transient institutional investors, shareholder voting rights, herding, corporate culture, Frank-Dodd, shadow banking system, subprime mortgages

JEL Classification: G18, G38, K22, K29, M14, M40

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Date posted: February 16, 2012  

Suggested Citation

Dallas, Lynne, Short-Termism, the Financial Crisis, and Corporate Governance (February 16, 2012). Journal of Corporation Law, Vol. 37, p. 264, 2011; San Diego Legal Studies Paper No. 12-078. Available at SSRN: http://ssrn.com/abstract=2006556

Contact Information

Lynne Dallas (Contact Author)
University of San Diego School of Law ( email )
5998 Alcala Park
San Diego, CA 92110-2492
United States
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