Will the Long-Term Stock Exchange Make a Difference?
The prevailing narrative on this topic is &quot;greedy investors only care about short-term profits&quot;. The spin is that visionary CEOs try to build long-term growth and innovation, but they&#x27;re continuously stymied by Wall Street vultures.<p>However the empirical evidence tells a very different story. Corporate managers have a demonstrated tendency towards wasteful ego-stroking empire building when not properly monitored. This is a classic principal-agent problem, where incentives drift away from shareholder interests.<p>Regular quarterly targets are an important part of management discipline. The longer CEOs have before being expected to deliver results, the longer they have to empire-build without being held accountable. Similarly investors bias towards bottom-line profits and cash flow. Those metrics are much harder to fake or spin, compared to intangible stories about brand value, market dominance or skunkworks projects.<p>When management does demonstrate credibility, Wall Street&#x27;s usually more than happy to let them focus on long-term initiatives. Just look at Amazon, which is a darling of the investment community, trusted to steer nearly a trillion dollars in shareholder capital. Bezos has continuously poured huge resources into long-term speculative initiatives at the expense of quarterly earnings. And he&#x27;s loved by shareholders for it, because he has a history of competence and putting company interests above personal ones.<p>[1] <a href="https:&#x2F;&#x2F;pdfs.semanticscholar.org&#x2F;c1cb&#x2F;684257b67940b9cf0d5aaabf26d4c20d31a5.pdf" rel="nofollow">https:&#x2F;&#x2F;pdfs.semanticscholar.org&#x2F;c1cb&#x2F;684257b67940b9cf0d5aaa...</a>