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Short-Term Shareholders, Bubbles, And CEO Myopia

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  • John Thanassoulis

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.

Suggested Citation

  • John Thanassoulis, 2013. "Short-Term Shareholders, Bubbles, And CEO Myopia," Economics Series Working Papers 663, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:663
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    File URL: http://www.economics.ox.ac.uk/materials/papers/12773/paper663.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Investor time-horrizons; bubbles; CEO compensation; cost of capital; short-termism; bonuses; shareholder register;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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