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Missing The Target: Why Stock Market Short-Termism Is Not The Problem

According to many political leaders, pundits, and corporate lawmakers, stock-market-driven short-termism—when corporations prioritize immediate results in the next quarter over their longer-term interests—is harming the American economy. This view, popular in influential circles, sees short-termism as causing sharply declining research and development (R&D), too many stock buybacks, and severe environmental harm. But the data fits badly with this view of stock market short-termism.

Mark J. Roe is the David Berg Professor of Law at Harvard Law School, where he teaches courses on corporate law, corporate finance, and corporate bankruptcy. Much of his research investigates how political forces shape, and are shaped by, the large corporation. The final chapters of Missing the Target: Why Stock Market Short-Termism Is Not the Problem do the same, pointing to why it’s politically convenient for key groups and leaders to assess stock market short-termism as more pernicious than it is.

reviews & comments:

“It’s so popular to beat up on short termism in the corporate world. But Mark Roe uses rigorous logic and a wealth of data to debunk many of the arguments used by its critics."

-Robert C Pozen, Senior Lecturer, MIT Sloan School of Management, Formerly President of Fidelity Investments

"In a world of misguided certainties, the view that stock market driven pressure to perform on a quarterly basis drives managements to be damagingly short-term focused is one of the most pernicious. This book is an essential corrective for serious investors, business managers, government policy makers and thoughtful citizens. It is also an invaluable example of careful analysis in the face of overwhelming accepted but false conventional wisdom."

-Bruce Greenwald, described by the New York Times as “a guru to Wall Street’s gurus;” advisor to First Eagle Investment Management; author of “Value Investing: from Graham to Buffett and Beyond”

“The idea that short-termism is a problem is so widespread that few people dare to question it. Mark Roe is one of these people. Armed with rigorous evidence and real-life examples, this eye-opening book will change the way you think about short-termism. It has profound implications for companies, investors, policymakers, and the general public’s view on the rights and wrongs of capitalism – leading to insights on why politics and public opinion outrun the evidence.”

-Alex Edmans, Professor, London Business School

“Roe argues convincingly why pressure on companies to earn short-term profits isn’t causing the harm critics say it is. . . . And that matters for public policy, lawmakers and the dominant narrative in how America’s corporations are run. There are plenty of problems, but they need different fixes. . . . [A] must-read for anyone interested in markets and policy . . . .”

- James Mackintosh, Streetwise, Wall Street Journal

Roe spoke at the Securities and Exchange Commission on the book’s subject.

In The Media:

book reviews:

"[That the pernicious of stock market short-termism] is so widely accepted, and allowed to pass unchallenged, even in relatively sophisticated business and policy-making circles, makes Mark Roe's new book particularly important and timely. In a measured, balanced, and utterly non-polemical fashion, and using the highest quality academic evidence, the Harvard Law professor weighs the evidence for and against the charge that stock-market short-termism is a serious problem for the U.S. economy.

. . . The disruption people feel from rapid technological change is not coming from stock-market short-termism. Declining corporate investment in hard assets is more likely coming from an economy shifting to intangibles, . . . [and] manufacturing [shifting] to East Asia."

-Tom Gosling, London Business School

“Roe’s analysis suggests . . . that the short-termism problem may be used by European politicians as a scapegoat for broader societal problems, or as a justification for favoring certain interest groups, such as executives and controlling shareholders.”

-Tom Vos, University of Antwerp

“As with all too many debates in our society and polity today, voices of reason seem few and far between. . . . Roe’s new book is a dispassionate, even-handed and persuasive deconstruction of the concept of stock market short-termism. . . . It may be emotionally satisfying [to believe it] . . . . [But the concept] should have no weight in policy decisions about the make-up of the modern corporation . . . and its role in society . . . .”

-Charles Nathan, Finsbury Glover Hering, Consulting Partner

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