Short-termism, Investor Clientele, and Corporate Performance
Harvard Business School
University of Southern California
Harvard University - Harvard Business School
Harvard Business School Accounting & Management Unit Working Paper No. 12-072
Using conference call transcripts to measure the time horizon that senior executives emphasize when they communicate with investors, we develop a measure of corporate short-termism. We find that the measure of short-termism is associated with various proxies for earnings management, suggesting that our proxy partially captures opportunistic behavior. We also show that firms focusing more on the short-term have a more short-term oriented investor base, and fewer analysts issuing long-term forecasts, suggesting that corporate and capital market short-termism are related. Moreover, consistent with analytical models that emphasize the costly nature of short-termism, we find that short-term oriented firms exhibit lower future accounting and stock market performance and a higher implied cost of capital.
Number of Pages in PDF File: 54
Keywords: short termism, corporate performance, conference calls, investor base, risk, cost of capital
JEL Classification: G12, G14, G21, M41working papers series
Date posted: February 6, 2012 ; Last revised: December 17, 2013
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