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167 U. Pa. L. Rev. 71 (2018-2019)
Stock Market Short-Termism's Impact

handle is hein.journals/pnlr167 and id is 77 raw text is: ARTICLE STOCK MARKET SHORT-TERMISM'S IMPACT MARK J. ROEt Stock-market-driven short-termism is crippling the American economy, according to legal, judicial, and media analyses. Firms forgo the R&D they need, cut capital spending, and buy back their own stock so feverishly that they starve themselves of cash. The stock market is the primary cause: directors and executives cannot manage for the long term when their shareholders furiously trade their company's stock, they cannot make long-term investments when stockholders demand to see profits on this quarter's financial statements, they cannot even strategize about the long term when shareholder activists demand immediate results, and they cannot keep the cash to invest in their future when stock market pressure drains away that cash in stock buybacks. This doomsday version of the stock-market-driven short-termism argument entails economy-wide predictions that have not been well-examined for their severity and accuracy. If the scenario is correct and strong, we should first see sharp increases in stock trading in recent decades and more frequent activist interventions, and these increases should be accompanied by (1) sharply declining investment spending in the United States, where large firms depend on stock markets and where activists are important, as compared to advanced economies that do not depend as much on stock markets, (2) buybacks bleeding cash out from the corporate sector, (3) economy-wide R&D spending declining from what it should be, and (4) a stock market unwilling to support innovative, long-term, technological firms. These are the central channels t Thanks for discussion and in some cases research assistance go to John Armour, Arevik Avedian, Lucian Bebchuk, Martin Bengtzen, Yochai Benkler, Margaret Blair, Christine Desan, Bala Dharan, Einer Elhauge, Allen Ferrell, Jesse Fried, Jos6 Gaspar, Jeffrey Gordon, James Greiner, Helen Hsu, Howell Jackson, Ari Kaissar, Sarah Kahwash, Louis Kaplow, David Kershaw, Lisa Lilliot, Shuting Lu, Dorothy Lund, Jonathan Macey, Eric Orts, Morgan Ricks, Paolo Saguato, Steven Shavell, Holger Spamann, Lynn Stout, Leo Strine, Cass Sunstein, Randall Thomas, Michael Tr5ge, Frederick Tung, Massimiliano Vatiero, Li Wang, Grace Zhu and participants in events at the Ecole Superieure de Commerce de Paris (ESCP Europe), Harvard Business School, Harvard Law School, the London School of Economics, Oxford, the University of Pennsylvania, and Vanderbilt Law School. (71)

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