The Uneasy Case for Favoring Long-Term Shareholders

The Uneasy Case for Favoring Long-Term Shareholders

Jesse Fried

Series number :

Serial Number: 

Date posted :

March 01 2013

Last revised :

April 05 2013
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  • 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

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.