Drivers and Performance Consequences of Corporate Short-Termism

• In Event: Doctoral Interchange Session #2 (Thursday afternoon)
  In Paper Session: Doctoral Interchange Session #2 (Thursday Afternoon)

Abstract

Using conference call transcripts to measure corporate short-termism, we explore the determinants and performance consequences of managerial short-termism. We find that capital market inefficiencies in the form of speculative markets and limits to arbitrage are significant contributors to short-termism. Moreover, we find that hidden-action and hidden-information problems further exacerbate short-termism. In addition, we show that aspects of corporate culture, such as gender, nationality, and prosocial tendency of a firm’s leadership, also determine short-termism. Consistent with analytical models, we find that holding current performance constant, short-term oriented companies underperform their peers in the next five years both in terms of accounting and stock market performance.

Authors

• Maria Loumioti, University of Southern California

• George Serafeim, Harvard University