Short-Termism and Underinvestment: The Influence of Financial Systems

Andrew Dickerson, Heather Gibson and Euclid Tsakalotos

The Manchester School of Economic & Social Studies, 1995, vol. 63, issue 4, 351-67

Abstract: This paper contributes to the debate on the existence of short-termism in Anglo-Saxon financial systems. The authors focus on one aspect of short-termism, namely the conflict that can exist between shareholder-owners and managers. Adapting a dynamic model first presented by K. Lancaster (1973), they show that noncooperation between shareholders and managers in the division of profits leads to a suboptimal level of investment. Anglo-Saxon financial markets are characterized by short-term relationships between agents. The implication of the authors' model is that institutional reforms promoting more long-term, cooperative, relationships may provide one mechanism in alleviating short-termism. Copyright 1995 by Blackwell Publishers Ltd and The Victoria University of Manchester

Date: 1995
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Persistent link: https://EconPapers.repec.org/RePEc:bla:manch2:v:63:y:1995:i:4:p:351-67

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