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short-termism
Do Share Buybacks Deserve More Regulatory Scrutiny?
In 2018, U.S. companies spent $1 trillion to buy back their shares, while they spent $4 trillion to do so between 2008 and 2017. This is raising strong criticism from different quarters in the political sphere. Not only do key …
Mergers and the Role of Earnings-Per-Share
Lawyers and investors pay close attention to how stock-based deals affect the acquirer’s short-term earnings per share (EPS). Merger announcements are regularly accompanied by discussions of whether the deal will be accretive or dilutive for the acquirer’s EPS, and if …
The Neglected Role of Justification Under Conditions of Uncertainty
A hot topic in corporate governance is the so-called short-termism of publicly held companies. In response to actual and anticipated pressure from activist hedge funds, companies are, some say, focusing too much on short-term gains by, for instance, shunning research …
Antitakeover Provisions and Firm Value: New Evidence from the M&A Market
A vast literature studies the effects of antitakeover provisions (ATPs) on firm value. The academic consensus is that ATPs harm firm value because they partly insulate managers from the threat of takeover, and that view has become very influential. Prominent …
Is It Time to Get Rid of Earnings-per-Share?
Do U.S. companies focus too much on short-term profits at the expense of long-term investments, profits, and growth? There is considerable debate among academics, practitioners, and politicians about the relevance of short-termism, its possible sources, and potential mechanisms to mitigate …
Wachtell Lipton on the State of Play of Activism at Year-End 2018
As we noted in early 2018, the threat of activism continues to be high, and has become a global phenomenon. The conclusion of a volatile and dynamic 2018 prompts a brief update of the state of play.
- Activist assets under
Comparative Corporate Governance
By adopting a systematic cross-national comparative approach, my recent study provides an overview of corporate governance (CG) around the world. It takes stock of what we know about the two main CG models, the variations within and across these models, …
What Really Drives “Short-Termism”?
Earlier this month, the CEO of Pepsi Co. suggested to President Trump that eliminating quarterly reporting (and shifting to biannual reporting) would reduce the pressure on managers to focus on the short-term. As impulsive as Elon Musk, the president bought …
Financial Reporting Frequency
I should be a prime candidate to support the lengthening of the financial reporting cycle from three to six months, as the White House—and many others—now say they want the SEC to do. I want public corporations to be more …
Quarterly Reporting and Market Liquidity
Trading in U.S. equity markets is fast and cheap. While proponents of ending quarterly reporting point to the dangers of short-termism, less frequent disclosure is also likely to lead to a decline in liquidity and to greater trading costs. The …
Cutting Disclosure Frequency Is the Wrong Solution to the Wrong Problem
President Trump has directed the Securities and Exchange Commission to study whether a public company’s reporting requirements should shift from a quarterly to semi-annual schedule. Doing so, according to the president, “would make business (jobs) even better in the U.S.” …
Corporate Governance—The New Paradigm—A Better Way Than Federalization
While “The Accountable Capitalism Act” introduced on August 15 by Senator Elizabeth Warren contains several very worthwhile provisions, it is premised on the federalization of all public corporations with revenues in excess of $1 billion. Mandatory federal incorporation and the …
Do Financial Analysts Help Improve Firm Productivity?
Academic researchers in corporate finance have in recent years taken a renewed interest in the impact of private firms on employment, growth, and other positive developments in national economies. In a recent article, we develop this new field of research …
Corporate Governance Consequences of Passive Investing
The popularity of index funds, which automatically track an index of stocks, is continuing to grow in the U.S, and, albeit less intensely, in the EU. Due to the high concentration of the index funds industry, the exponential rise of …
New Data Shed Light on Mutual Fund Time Horizons
Short-termism is a loaded phrase in debates over investment time horizons, often used to criticize investors and corporate managers deemed overly focused on near-term gains at the expense of long-term value. One argument is that U.S. mutual funds, as significant …
The Purpose of the Corporation
Whether the purpose of the corporation is to generate profits for its shareholders or to operate in the interests of all of its stakeholders has been actively debated since 1932, when it was the subject of dueling law review articles …
Is Corporate Short-Termism on the Rise in the U.S.?
Corporate short-termism has been much discussed over the past few decades, but has recently become a growing concern for the U.S. economy. Executives and politicians warn of increased market pressure on corporations to meet short-term performance metrics at the expense …
Wachtell Lipton Shines a Spotlight on Boards for 2017
This past year witnessed a number of new corporate governance initiatives. Among the most significant:
- BlackRock, State Street and Vanguard each issued strong statements supporting long-term investment, criticizing the short-termism afflicting corporate behavior and the national economy and rejecting financial
Hedge Fund Activism: A Guide for the Perplexed
The message of the Dow/DuPont merger and split up is simple: No firm is today “too big to target.” Activists can see the transaction as evidence that, even in the rare case where they lose a proxy fight (as they …