The Uneasy Case for Favoring Long-Term Shareholders

Proposals to favor long-term shareholders of public firms are based on a widely-held belief: that long-term shareholders, unlike short-term shareholders, benefit from managers maximizing the long-term economic value generated by the firm. This belief, I show, is mistaken. Long-term shareholders, like short-term shareholders, can benefit from managers destroying economic value ? even if the firm?s only residual claimants are its shareholders. My analysis suggests that the case for shifting power from short-term to long-term shareholders is substantially weaker than it might appear.