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A fixed point of corporate law is that shareholders are, and should be,
the ones whose interests count in corporate decision-making. This does
not imply that shareholders systematically exploit other participants in
the firm or otherwise defeat established expectations (notwithstanding the
implicit assumption in Joseph Singer and Jacob Ziegel's papers); such
strategies are not in the shareholders' interest because the parties are in
a repeated, long-term relationship, in which future cash flows matter.
Rather, differences in claim characteristics provide shareholders with the
best incentives regarding the long-term effects on the firm of a shortsighted
redistribution move: (1) employees and bondholders periodically
renegotiate their contracts with corporations as their relations have finite
terms whereas common stock investments have no such term limit; and
(2) while workers cannot leave their jobs to their heirs, equity claims are
transferable and expected to last beyond an individual's lifetime.
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