Corporate Long-Termism: Looking Toward an (Un)Certain Future

Abstract

Do investors benefit when managers have long-term perspective? The dominant narrative suggests that they do. In this paper, we exploit the language characteristics of annual reports and offer a nuanced answer. We find that future-focused language is associated with relatively lower corporate risk, greater investment in tangible assets, more innovation, lower cost of capital, wider lender base, and higher firm value when accompanied by lower uncertainty. These associations either disappear or reverse, when uncertain tone is high, indicating that corporate long-termism is value enhancing only when accompanied by low uncertainty.

Keywords: Textual analysis, future orientation, short-termism, uncertaint tone

JEL Classification: G10, G20, G30,