Leadership

On Uneven Ground: How Corporate Governance Prioritizes Short-Term Speculative Investments, Impedes Productive Investments, And Jeopardizes Productivity Growth

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Executive Summary

The economic recovery after the Great Recession highlighted a continuous divergence between soaring profits and lagging investment. These trends are related at the corporate level, where corporate managers have stronger incentives to pursue short-term profit-seeking activities than to invest in longer-term productive activities, such as hiring and training people and investment in physical infrastructure. This prioritization results because the corporate governance system is biased towards the short run. The policy goals that the authors discuss aim to find a better economic balance between short-run and long-run goals by defining long-term performance measures and finding a better balance in the incentives of short-run and long-run oriented corporate stakeholders.

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