Working Paper | HBS Working Paper Series | 2013

Short-termism, Investor Clientele, and Corporate Performance

by Francois Brochet, Maria Loumioti and George Serafeim


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.

Keywords: Short-termism; myopia; investor clientele; earnings management; Corporate performance; cost of capital; Business Ventures; Business and Stakeholder Relations; Stocks; Volatility; Cost of Capital; Resource Allocation; Risk and Uncertainty;


Brochet, Francois, Maria Loumioti, and George Serafeim. "Short-termism, Investor Clientele, and Corporate Performance." Harvard Business School Working Paper, No. 12-072, February 2012. (Revised August 2012, February 2014.)