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70 N.C. L. Rev. 137 (1991-1992)
Short-Term/Long-Term Dichotomy and Investment Theory: Implications for Securities Market Regulation and for Corporate Law, The

handle is hein.journals/nclr70 and id is 165 raw text is: THE SHORT-TERM/LONG-TERM DICHOTOMY AND INVESTMENT THEORY: IMPLICATIONS FOR SECURITIES MARKET REGULATION AND FOR CORPORATE LAW THOMAS LEE HAZEN* Managers ofpublicly held corporations in the United States face increasing pressure to maximize their companies' near-term earnings. This pressure emanates in part from the financial markets, which have in recent years experienced a period of un- precedented change and innovation. In this Article, Professor Thomas Lee Hazen examines the current state of American fi- nancial markets. Professor Hazen presents a thorough overview of investment theory, market forecasting techniques, develop- ments in state corporate law, and current federal regulatory pol- icy. He also discusses many of the new derivative instruments and innovative trading techniques that investors currently utilize. Professor Hazen contends that markets have become more vola- tile in recent years, causing investors to focus increasingly on near-term performance. He further asserts that the proliferation of short-term derivative instruments has exacerbated this prob- lem. As investors demand superior near-term results, corporate managers feel compelled to shore up current earnings, often at the expense of investing for the future. Professor Hazen proposes reforms to reverse this situation that, if left unchecked, may pose dire consequences for the health and competitiveness of the American economy. I. INTRODUCTION AND OVERVIEW During the past decade, financial markets have experienced unprec- edented volatility resulting in many wide price swings within very short periods of time. This volatility has coincided with two major develop- ments. First, the current regulatory philosophy of the Securities and Ex- change Commission (SEC) and of the Commodity Futures Trading * Cary C. Boshamer Distinguished Professor of Law, The University of North Carolina at Chapel Hill; B.A. 1969, J.D. 1972, Columbia University. The author acknowledges the helpful research assistance of Rhonda Schnare, UNC Law class of 1991, and Lee Potter, UNC Law class of 1992. Part of the work for this Article was funded by the North Carolina Law Foundation.

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