Are US Firms Becoming More Short-Term Oriented? Evidence of Shifting Firm Time Horizons from Market Discount Rates, 1980-2013

60 Pages Posted: 13 Sep 2016 Last revised: 16 May 2019

See all articles by Rachelle C. Sampson

Rachelle C. Sampson

University of Maryland - Robert H. Smith School of Business; Georgetown University - Robert Emmett McDonough School of Business

Yuan Shi

Cornell SC Johnson College of Business - The Hotel School; University of Maryland - Department of Management & Organization

Date Written: May 15, 2019

Abstract

We provide evidence that investors in US public markets are increasingly discounting firms’ expected future cash flows during 1980-2013. This trend is shown not only on average across firms, but also within firms over time after alternative explanations are accounted for. To corroborate a link with firm time horizons, we estimate the relationship between market discounting and factors relevant to firm long-term strategy. We find that market discounting is correlated in expected ways with firm investments, ownership, management incentives, external pressures and its financial health - measures that have been argued to correlate with firm time horizons. This paper represents one of the first attempts to document market-wide evidence of shortening firm time horizons. These changing horizons bear important implications for firm strategy.

Keywords: Short-Termism, Myopia, Institutional Investing, Financial Economics, CEO Compensation, time horizons

JEL Classification: D22, D92, G23, G32, M21

Suggested Citation

Sampson, Rachelle C. and Shi, Yuan, Are US Firms Becoming More Short-Term Oriented? Evidence of Shifting Firm Time Horizons from Market Discount Rates, 1980-2013 (May 15, 2019). Available at SSRN: https://ssrn.com/abstract=2837524 or http://dx.doi.org/10.2139/ssrn.2837524

Rachelle C. Sampson (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

Van Munching Hall
University of Maryland
College Park, MD 20742-1815
United States
(301) 405-7658 (Phone)

HOME PAGE: http://www.linkedin.com/in/rachelle-sampson-68a3b610/

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

Yuan Shi

Cornell SC Johnson College of Business - The Hotel School ( email )

Ithaca, NY 14850
United States

University of Maryland - Department of Management & Organization ( email )

United States

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