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Short Term Investments

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A frequent criticism of the management for publically-owned American companies is that they are too short term oriented, too focused on fast returns, and that this negatively impacts their long term capital budgeting. Can you suggest a company, or industry, where this appears to be true? Why? How? Do the recent problems at Toyota suggest that the problem is spreading to other countries? How do we keep an emphasis on the “long-term” from becoming an excuse for continued poor results is the “short-term?”
One industry that seems to be concentrating on short term investments and fast returns, is the pharmaceutical industry. According to Lynn Stout a Cornell Law professor, she believes that “as companies have increasingly focused on their stock prices and given managers more shareholdings, they have inadvertently empowered hedge funds that push for short-term solutions” (LaMattina, 2012). Mergers have taken place over the last 10 years (Pfizer-Wyeth) and can have great short term payouts, they bring a reduction in redundancies and greater cash flow. However they can have disastrous outcomes, especially to research and development sections that are especially susceptible to disruptions like a merger. Over the last decade, budgets for R&D have been decreasing because these big pharma companies want to cut the expenses in order have a better bottom line, a short term fix. R&D budgets used to be 15-20% of the revenues, in 2012; Pfizer only spent 11% of their revenues on R&D (LaMattinna, 2012).
It seems like everything is too fast paced. The mentality seems to be that “we have to come out with the bigger and better product faster than the other guy and it doesn’t matter what corners we have to cut to do it.” Instead of taking the time to test a product thoroughly, and make sure it is safe and won’t malfunction, these companies are producing products and then turning

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