The Uneasy Case for Favoring Long-Term Shareholders

75 Pages Posted: 3 Mar 2013 Last revised: 28 Apr 2015

See all articles by Jesse M. Fried

Jesse M. Fried

Harvard Law School; European Corporate Governance Institute (ECGI)

Date Written: February 26, 2014


This paper challenges a persistent and pervasive view in corporate law and corporate governance: that a firm’s managers should favor long-term shareholders over short-term shareholders, and maximize long-term shareholders’ returns rather than the short-term stock price. Underlying this view is a strongly-held intuition that taking steps to increase long-term shareholder returns will generate a larger economic pie over time. But this intuition, I show, is flawed. Long-term shareholders, like short-term shareholders, can benefit from managers destroying value — even when the firm’s only residual claimants are its shareholders. Indeed, managers serving long-term shareholders may well destroy more value than managers serving short-term shareholders. Favoring the interests of long-term shareholders could thus reduce, rather than increase, the value generated by a firm over time.

Keywords: AOL-Time Warner, 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, Wal-Mart

JEL Classification: G32, G34, G35, G38, K22

Suggested Citation

Fried, Jesse M., The Uneasy Case for Favoring Long-Term Shareholders (February 26, 2014). 124 Yale Law Journal 1554-1628 (2015), ECGI - Law Working Paper No. 200 , Available at SSRN: or

Jesse M. Fried (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Griswold Hall 506
Cambridge, MA 02138
United States
617-384-8158 (Phone)


European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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