Wrong-Termism, Right-Termism, and the Liability Structure of Investor Time Horizons

Abstract

Do investor time horizons lead to inefficient business conduct in the real economy? An extensive finance literature analyzes whether particular practices (e.g., high frequency trading and stock buybacks) lead firms to operate with inefficiently myopic investment horizons, and an extensive legal literature considers the appropriateness of policy interventions. This Article joins those debates by charting the space of possibilities: what might be the causes of problematic time horizons? What solutions are available? One implication of this analysis is that there may be unexplored market-based solutions located on the liability side of investors’ balance sheets. This Article also argues that we should avoid characterizing the time horizon problem in a manner that subtly endorses some contested perspective on the appropriate time horizon. Rather than investigating excessive “short-termism” or “long-termism,” our starting point should be the broader category of “wrong-termism.” This Article was written in connection with the 9th Annual Berle Symposium: Investor Time Horizon.