How CEOs Can Fix Capitalism

4

How to Combat Short-Termism

Beware of Short-Term Management, Not the Short-Term Investor

by Ananth Raman

Much has been made in recent years about the pernicious influence of short-term investors on corporate performance. I believe these arguments often miss a nuance: It is not the short-term investor but short-term management that is the problem. The short-term investor does not reduce the firm’s long-term competitiveness and value; short-term management does.

There is plenty of evidence to show that investors can and do trade stocks more frequently than they did decades ago. This by itself is not a surprise; after all, the costs and effort associated with trading stocks have gone down dramatically. Not surprisingly, some investors would ...