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It is true that earnings management is an issue. The histogram of earnings % shows a discontinuity when earnings are negative but approaching zero, [1] which sh

It is true that earnings management is an issue. The histogram of earnings % shows a discontinuity when earnings are negative but approaching zero, [1] which shows that managers will artificially inflate earnings to show a positive earnings per share. But I find the idea of short-term-ism in managing profits a little counter to the goals of managers. Presumably, managers are motivated to stay in the job and make more money for themselves, and would do a calculation between short term and long term investment. >>> “It concerns us that, in the wake of the financial crisis, many companies have shied away from investing in the future growth of their companies,” Laurence Fink, the chairman and CEO of BlackRock This may be related to the complexity of driving returns that exceed the cost of capital by a sufficient amount, one that would be within the range that the company and their shareholders find palatable. If people think that these companies should not be buying back their stock and instead invest them in growth opportunities, maybe this means that these opportunities exist for others to take advantage of. But the author does not mention that other companies do that. It somehow places the risk and responsibility of investing in the company that has the cash. I think the issue is researches who spend too much time [2] sitting at their fancy desks and protected by grants or tenure. Maybe they should leave and actually go out there and start a company. [1] http://www.scielo.org.za/img/revistas/sajems/v19n1/02f01.jpg http://www.scielo.org.za/img/revistas/sajems/v19n1/02f01.jpg [2] https://en.wikipedia.org/wiki/William_Lazonick https://en.wikipedia.org/wiki/William_Lazonick

b1daly 9y ago
Maybe I’m missing something amid all the technocratilly minded discussions on the virtues of paying dividends vs stock buybacks vs the issue of whether the profits of a company are more efficiently used to fund new investment compared to returning profits to shareholders (one way or another) so they can reinvest. I thought the broader point was that successful companies are amassing profits, derived, presumably, from overall increased productivity. But instead of sharing this surplus equitably amongst all the employees, by, for example, raising wages, executives are engaging in strategies that increase their share of the surplus, and possibly the shareholders share, at the expense of the lower level workers.
marcosdumay 9y ago
> Presumably, managers are motivated to stay in the job and make more money for themselves How long do top level managers stay at the same company? I would expect places with lower rotativity to think more long-term.

b1daly 9y ago

Maybe I’m missing something amid all the technocratilly minded discussions on the virtues of paying dividends vs stock buybacks vs the issue of whether the profits of a company are more efficiently used to fund new investment compared to returning profits to shareholders (one way or another) so they can reinvest. I thought the broader point was that successful companies are amassing profits, derived, presumably, from overall increased productivity. But instead of sharing this surplus equitably amongst all the employees, by, for example, raising wages, executives are engaging in strategies that increase their share of the surplus, and possibly the shareholders share, at the expense of the lower level workers.

marcosdumay 9y ago

> Presumably, managers are motivated to stay in the job and make more money for themselves How long do top level managers stay at the same company? I would expect places with lower rotativity to think more long-term.