Corporate Short-Termism - In the Boardroom and in the Courtroom

This chapter examines the widespread belief that short-termism in financial markets undermines corporate decision-making and contributes to environmental and economic challenges. It evaluates evidence for and against this claim, emphasizing systemic mechanisms like private equity and venture capital that counteract short-term pressures. The chapter argues that internal corporate factors, such as CEO incentives and managerial priorities, play a greater role in fostering short-term behaviors than external market dynamics. It critiques the reliance on short-termism as a justification for governance reforms, asserting that courts and legislatures are poorly suited to address these complex economic issues. Finally, the chapter highlights that environmental harm stems from profit-driven externalities rather than distorted time horizons, cautioning against using short-termism to shield managers from market accountability.