CONFLICTING INTERESTS IN INFORMATION DISCLOSURE AND SHORT-TERM ORIENTATION OF FIRMS

This paper explains why firms might be excessively short-term oriented even when they are able to inform the capital market about the true quality of their assets. The information a firm reveals to the capital market can be used by competitors to the firm's detriment. In this caw, the future profitability of the firm's assets is no longer exogenous, but is influenced by the strategic actions of its competitors, which in tum depend on the information the firm discloses. This motivates the firm to switch resources from future prospects to short-term profits. The results have policy implications and may help explain the empirical observation that US. firms tend to be more short-term oriented than Japanese firms.