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Rethinking Short-Termism: When shareholder impatience reduces short-termism

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  • Breuer, Wolfgang
  • Knetsch, Andreas
  • Siemer, Luis Maria

Abstract

We challenge the common view that short-term oriented shareholders necessarily induce managerial short-termism. Empirical work often treats declines in long-term investment as evidence of value-destroying behavior, but we distinguish efficient short-term investment from genuinely short-termist, value-reducing decisions. Extending Narayanan’s (1985) model to incorporate both managerial and shareholder time preferences, we show that impatient investors interpret fewer actions as short-termist, thereby reducing short-termism for a given investment horizon. Consequently, shorter shareholder investment horizons can mitigate rather than intensify short-termism. This clarification suggests that observed investment patterns may reflect optimal preference alignment rather than managerial opportunism, raising important cautions for regulatory proposals targeting short-term investors.

Suggested Citation

  • Breuer, Wolfgang & Knetsch, Andreas & Siemer, Luis Maria, 2026. "Rethinking Short-Termism: When shareholder impatience reduces short-termism," Finance Research Letters, Elsevier, vol. 92(C).
    • Handle: RePEc:eee:finlet:v:92:y:2026:i:c:s1544612326000188
    DOI: 10.1016/j.frl.2026.109487
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    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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