Entries by Alex Edmans

How Short-Term Activists Create Long-Term Value

Activist hedge funds are often seen as the epitome of all that’s wrong with capitalism. They cut investment, fire employees, and break contracts to boost the short-term stock price, and cash out before the long-term value destruction comes to light. It’s certainly possible to find examples of this. And such stories make for good journalism […]

A Layman’s Guide to Separating Causation from Correlation … and Noticing When Claims of Causality are Invalid

Imagine you’re the Minister for Education, deciding how large to make a school district. Larger school districts offer parents more school choice. You look at data from thousands of school districts and find that, in larger districts, child performance is better. You’re tempted to infer that district size increases child performance. But, as we know, correlation doesn’t imply causation. […]

How Proxy Advisors Influence Voting Outcomes

Proxy advisors are playing an increasingly influential role in corporate governance, by providing investors with guidance on how to vote in director elections or for a manager- or shareholder-sponsored proposal (e.g. on corporate social responsibility or payout policy). Their influence is growing, in part, due to the rapid rise in index funds – since they […]

The UK’s Brexit Options

The UK voted for Brexit last June, but what does Brexit actually mean? The UK can pursue various options: staying in the Single Market, staying in the Customs Union, or forming a Free Trade Area. These are often used interchangeably as various forms of a “soft Brexit”, but there are important distinctions between them. The […]

CEOs Cut Investment To Sell Their Own Shares At High Prices

One of the most fundamental concerns with corporations is that they focus on short-term profit rather than investing for the long-term. This is a particular concern in the 21st century, where innovation is particularly critical for competitive success. Moreover, allegations of short-termism have serious social repercussions. Long-term investments, such as reducing carbon emissions, developing blockbuster drugs, or […]

Is Short Termism Really A Problem?

“Myopia [short-termism] is a first-order problem faced by the modern firm. In the last century, firms were predominantly capital-intensive, but nowadays competitive success increasingly depends on intangible assets such as human capital and R&D capabilities (Zingales (2000)). Building such competencies requires significant and sustained investment. Indeed, Thurow (1993) argues that investment is an issue of […]

Conflicts of Interest Among Proxy Advisors

The Importance of Proxy Advisors Proxy advisors play a critical role in corporate governance. One important way in which shareholders exert governance – ensure that executives act in shareholders’ interest, rather than their own interest – is through voting. Votes can be for particular directors (who monitor executives), for or against a say-on-pay vote, or for […]

House of Commons Report on Corporate Governance

Today the House of Commons Select Committee on Business, Energy, and Industrial Strategy (BEIS) published its report on corporate governance, after extensive consultation of oral and written testimony from a wide range of stakeholders. I applaud the Select Committee for such an extensive, thorough job with an issue of national importance, and am personally grateful […]