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Short-Termism and Underinvestment: The Influence of Financial Systems

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  • Dickerson, Andrew P
  • Gibson, Heather D
  • Tsakalotos, Euclid

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

Suggested Citation

  • Dickerson, Andrew P & Gibson, Heather D & Tsakalotos, Euclid, 1995. "Short-Termism and Underinvestment: The Influence of Financial Systems," The Manchester School of Economic & Social Studies, University of Manchester, vol. 63(4), pages 351-367, December.
  • Handle: RePEc:bla:manch2:v:63:y:1995:i:4:p:351-67
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    1. Robertson, D & Symons, J, 1994. "Five Weeks in the Life of the Pound. Interest Rates, Expectations and Sterling's Exit from the ERM," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(1), pages 1-12, February.
    2. Levin, Eric J & Copeland, Laurence S, 1993. "Reading the Message from the U.K. Indexed Bond Market: Real Interest Rates, Expected Inflation and the Risk Premium," The Manchester School of Economic & Social Studies, University of Manchester, vol. 61(0), pages 13-34, Suppl..
    3. Woodward, G Thomas, 1990. "The Real Thing: A Dynamic Profile of the Term Structure of Real Interest Rates and Inflation Expectations in the United Kingdom, 1982-89," The Journal of Business, University of Chicago Press, vol. 63(3), pages 373-398, July.
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    Cited by:

    1. McSweeney, Brendan, 2009. "The roles of financial asset market failure denial and the economic crisis: Reflections on accounting and financial theories and practices," Accounting, Organizations and Society, Elsevier, vol. 34(6-7), pages 835-848, August.
    2. repec:mje:mjejnl:v:11:y:2015:i:1:p:107-116 is not listed on IDEAS

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