On Uneven Ground: Corporate Governance and Corporate Investments

Abstract

The economic recovery after the Great Recession showed a continuous divergence between soaring profits and lagging investment. These trends are related at the corporate level, where managers have more incentives to pursue short-term speculation than to invest in longer-term productive capacity. This prioritization results because the corporate governance system is biased toward the short run. The ensuing policy goals to find a better economic balance between short-run and long-run goals are to define long-term performance measures and to find a better balance in the incentives of short run– and long run–oriented corporate stakeholders.