The Short-Term/Long-Term Dichotomy and Investment Theory: Implications for Securities Market Regulation and for Corporate Law

Abstract

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 unprecedented change and innovation.In this Article, Professor Thomas Lee Hazen examines the current state of American financial markets.Professor Hazen presents a thorough overview of investment theory, market forecasting techniques, developments in state corporate law, and current federal regulatory policy.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 volatile 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 problem.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.

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