What is the impact of maximizing share prices and dividends in the short term on firms in the long run?

Maximizing share prices and dividends in the short term often leads to a focus on immediate financial returns at the expense of long-term strategic planning and investment. When firms prioritize short-term gains, they may neglect essential areas such as research and development, employee training, and sustainable practices that contribute to long-term growth and stability.

The overemphasis on quarterly profits can result in firms making decisions that boost short-term share prices but undermine their competitive position or operational efficiency in the future. For instance, cutting costs by reducing investment in innovation or downsizing the workforce may provide immediate financial relief, but these actions can cripple the organization's ability to adapt and thrive over time.

Consequently, while shareholders may initially benefit from increased dividends and higher stock prices, the underlying value of the firm may be jeopardized. Firms that fail to invest in their future may experience diminished market presence and profitability down the line, ultimately harming shareholder value in the long run. This understanding highlights the balance that firms must strike between short-term financial performance and long-term sustainability and growth.