Short-Term Shareholders, Bubbles, And CEO Myopia

John Thanassoulis

No 663, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: This paper analyses the real economy effects of firms having some shareholders with a short investment horizon on their shareholder register. Short-term shareholders cause management to be concerned with the path of the share price as well as its ultimate value. Such shareholders in an economy lead to bubbles in the prices of key inputs, to the misallocation of firms to risky business models, and to increased costs of capital. For individual firms short-term shareholders induce the Board to reduce deferred incentives in CEO pay prompting CEO myopia and reduced investments in the long-run capabilities of the firm.

Keywords: Investor time-horrizons; bubbles; CEO compensation; cost of capital; short-termism; bonuses; shareholder register (search for similar items in EconPapers)
JEL-codes: G12 G34 L21 L25 (search for similar items in EconPapers)
Date: 2013-07-04
New Economics Papers: this item is included in nep-bec and nep-hrm
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