These include arms-length shareholding on public equity markets rather than relationship-based financing, absence of concentrated shareholdings in individual companies, a substantial rise in financial intermediaries over the last decade, and the growth of high-frequency traders and exchange-traded funds, both of which put pressure on corporations to produce short-term results. Some causes of short-termism are extraneous to the corporation. Decisions made with a view to the long-term may not be “good decisions” and, similarly, short-term decisions may not be “bad decisions”.Īccordingly, it is important that companies manage short, medium and long-term horizons across all their decision-making, and strike a balance between these timeframes. It is also important to note that the timeframe contemplated by the decision-maker will not necessarily be indicative of the quality of theĭecision. There is also the view that the “long term is nothing but a “series of short terms” put back to back” that is, companies that performĬonsistently well over the short-term may have a better chance of succeeding in the long term. In some circumstances, a focus on short-term risks, results or opportunities will be beneficial, particularly in a time of rapid change orĬrisis. Effective company strategies will generally have short, medium and long-term elements. Having short-term objectives is not, of itself, detrimental to company value. It manifests in actions (e.g behaviours and decisions), as well as inaction. That the meaning of “short-term” will vary across industries andĢ. “excessive short-termism” is defined as a focus on short-term objectives that disregards (whether intentionally or otherwise) the potentialĪdverse effect of those objectives on long-term value creation. Investment decision making based on short-term earnings expectations versus long-term value creation for all stakeholders”.įor the purpose of this perspectives paper:ġ. “short-term” is defined as a time horizon of approximately three years or less, bearing in mind Long-term security”, “the focus of investors and managers on short-term returns at the expense of those over the longer-term”, and “corporate and For example, an investment decision by a company that has a relatively long payoff period may not have an immediate positive impact on the company’s market value, and may actually have a negative short-term impact.Įxcessive short-termism has been variously described as “concentration on short-term projects or objectives for immediate profit at the expense of Timeframe for expected outcomes is often important because decisions made with a view to achieving certain long-term outcomes may have negative short-term consequences, and vice versa. Similarly, the outcomes of decisions may be assessed having regard to a pre-determined timeframe (whether implicit or explicit). Background: The problem of excessive short-termismĭecisions-including those of a business, investment or financial nature-are often made with a particular timeframe in mind.
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