The Uneasy Case for Favoring Long-Term Shareholders
Jesse M. Fried
Harvard Law School
March 18, 2013
ECGI - Law Working Paper No. 200
Proposals to favor long-term shareholders of public firms are based on a widely-held belief: that long-term shareholders, unlike short-term shareholders, benefit from managers maximizing the long-term economic value generated by the firm. This belief, I show, is mistaken. Long-term shareholders, like short-term shareholders, can benefit from managers destroying economic value — even if the firm’s only residual claimants are its shareholders. My analysis suggests that the case for shifting power from short-term to long-term shareholders is substantially weaker than it might appear.
Number of Pages in PDF File: 66
Keywords: corporate governance, short-termism, short-term shareholders, long-term shareholders, agency costs, earnings manipulation, managerial myopia, share repurchases, open market repurchases, acquisitions, seasoned equity offerings, real earnings management
JEL Classification: G32, G34, G35, G38, K22working papers series
Date posted: March 3, 2013 ; Last revised: April 3, 2013
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