Short-termism contributed to GFC
While many corporate executives believe that investment analysts value people and culture, what they really value is cost management and efficiency, according to new research released by AMP Capital Investors.
AMP Capital Investors' latest Corporate Governance Report warned, however, that an overemphasis on short-term factors in preference to longer-term qualitative risk issues contributed to the asset price bubble that preceded the global financial crisis.
AMP Capital Investors' senior portfolio manager of sustainable funds, Michael Murray, said the research had identified an overreliance on intangible aspects of valuation, particularly things that could be comfortably measured and communicated by the analyst community, such as announced costs and efficiencies.
“Investors can avoid traps associated with an overemphasis on short-term company factors by considering intangible and qualitative issues such as corporate governance [and] environmental and social responsibility,” he said.
Murray said understanding intangible issues and how these impact asset valuations requires a longer-term perspective than is generally adopted by market participants.
He said overemphasis on short-term performance was likely to remain a challenge for fundamental investors, but by conducting long-term risk analysis, investors could have avoided companies that were the “flavour of the month” during the asset price bubble by focusing on significant issues around governance and transparency.
Recommended for you
As the first quarter of 2024 comes to a close, Money Management looks back on the corporate regulator’s bans and AFSL cancellations in the financial advice sector.
Insignia Financial is holding ‘relatively steady’ onto its rank as Australia’s second-largest financial advice licensee after the Godfrey Pembroke exit but Count is hot on its heels.
Liberal senator Slade Brockman has said the government needs to have a “cold hard look” at the level of regulation in the financial advice space and the costs of running a business.
FAAA chief executive, Sarah Abood, has warned changes in the first tranche of the QAR legislation around advice fees documentation could create more work for advisers rather than less.