Abstract
Do the performance pressures of the capital market exacerbate short-termism and stifle innovation? This longstanding question has doggedly eluded a conclusive answer due to conflicting empirical findings. We revisit two studies that have been central to rejecting short-termism: Atanassov (2013) and its replication by Karpoff and Wittry (2018). After revising some of the empirical choices by Atanassov (2013), we find the opposite result: antitakeover laws that insulate managers from the market for corporate control enhance innovation, driven by firms with significant ownership by short-term oriented investors. However, antitakeover laws do exacerbate the pursuit of value-destroying acquisitions. Our findings highlight corporate governance as a strategic variable that imposes a tradeoff in disciplining different agency conflicts and weak governance as a necessary evil to stimulate innovation.
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