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But I think you're making the same argument. A CEO is a "stakeholder". When the CEO makes decisions with an eye on the very short-term (to hit share price or EP

by glesica 12y ago

But I think you're making the same argument. A CEO is a "stakeholder". When the CEO makes decisions with an eye on the very short-term (to hit share price or EPS targets) he or she potentially destroys capital. It might even be the case that shareholders today aren't really any better than other "stakeholders" in terms of alignment of incentives. If I'm just arbitraging a stock, do I really care how the company actually performs in real life? Probably not. I care about the popular perception of the company in the market at the point at which I want to sell (or buy, I suppose, depending whether I'm long or short, but whatever, same difference).

bobcostas55 12y ago
>When the CEO makes decisions with an eye on the very short-term (to hit share price or EPS targets) he or she potentially destroys capital. The crucial difference is that, according to the article at least, the short-termism leads to them not taking +NPV projects, instead returning money to shareholders. This money can be redeployed productively, so even if it's not earning the NPV of that theoretical project, it's earning something very close to it. The opportunity cost is very small. Stakeholders undertaking -NPV projects is a whole other ballpark. Just consider the growth implications when this happens economy-wide.
- glesica 12y ago
  It's true that they are different, though I disagree that the next-best option is always going to be "vary close"). However, in this case the "shareholder value" problem is systemic, meaning that there really isn't anywhere else for shareholders to put their money. This potentially helps explain some of the asset bubbles we've seen, as well as the startup bubble (if one exists). Regardless of how the analysis falls out for the shareholder, then, the situation is almost certainly sub-optimal for the economy as a whole.

by glesica 12y ago

bobcostas55 12y ago

>When the CEO makes decisions with an eye on the very short-term (to hit share price or EPS targets) he or she potentially destroys capital. The crucial difference is that, according to the article at least, the short-termism leads to them not taking +NPV projects, instead returning money to shareholders. This money can be redeployed productively, so even if it's not earning the NPV of that theoretical project, it's earning something very close to it. The opportunity cost is very small. Stakeholders undertaking -NPV projects is a whole other ballpark. Just consider the growth implications when this happens economy-wide.

glesica 12y ago
It's true that they are different, though I disagree that the next-best option is always going to be "vary close"). However, in this case the "shareholder value" problem is systemic, meaning that there really isn't anywhere else for shareholders to put their money. This potentially helps explain some of the asset bubbles we've seen, as well as the startup bubble (if one exists). Regardless of how the analysis falls out for the shareholder, then, the situation is almost certainly sub-optimal for the economy as a whole.