Journal of Law, Finance, and Accounting > Vol 7 > Issue 1

Stock Market Short-Termism: What the Empirical Evidence Tells Policymakers

Mark J. Roe, David Berg Professor of Law, Harvard Law School, USA,
Suggested Citation
Mark J. Roe (2022), "Stock Market Short-Termism: What the Empirical Evidence Tells Policymakers", Journal of Law, Finance, and Accounting: Vol. 7: No. 1, pp 1-41.

Publication Date: 28 Apr 2022
© 2022 M. J. Roe
JEL Codes: K22, G34
Corporate short-termismforensic reviewhedge fund activismstock market valuationcorporate R&D


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In this article:
The Evidence For and Against, Summarized 
Evaluating Firm-Level Evidence 
Why Economy-Wide Problems Cannot Be Extrapolated from Firm-By-Firm Studies: The Economy as Ecosystem 


In corporate law policymaking, there is considerable attention to stock market short-termism. Public discourse pins some noticeable part of the blame for climate change, environmental damage, and mistreatment of stakeholders on stock market short-termism. Presidential candidates raise the issue and castigate the stock market for short-termism; and it’s regularly invoked to justify securities regulation proposals and corporate case-law decisions. Here I examine the extant economic empirical work on stock market short-termism to assess whether it supports making stock market short-termism actionable in a major way for policy purposes. I evaluate it in two dimensions: first to see whether a consensus emerges from the work (none does) and second to see whether the work is conceptually structured to reveal its economy-wide severity. The latter conceptual point – the difficulty in scaling much corporate research to ascertain whether there’s an economy-wide problem – affects not just the stock market short-termism inquiry. The typical research effort seeks to measure whether a local treatment induces more local short-termism, not whether the economy-wide impact is severe. But evaluating short-termism’s economy-wide impact is essential for policymaking; policymakers must consider whether the economy is failing to invest or cutting back on R&D because of a stock market afflicted with a truncated time horizon. Local findings (of the impact on a subset of firms with a particular characteristic, such as short-vesting stock options, rapid stock market trading, or hedge fund activism) need not scale to economy-wide results; some local results will do so only serendipitously; and, finally, there are structural reasons why for stock market short-termism one should expect economy-wide results not to match local results. More than most corporate law issues, the short-termism problem faces a high failure-to-scale hurdle.