The Wall Street Journal features research co-authored by Ivey's Tima Bansal and Boston University's Caroline Flammer suggesting companies need to ditch their focus on short-term gains and take a longer view.
The study finds a switch to a long-term outlook can improve a company’s operating performance by several measures including return on assets, operating profits, and sales growth—within two years.
With an increased emphasis on long-term incentives, Bansal and Flammer found companies boosted their efforts to innovate and pursue riskier forward-looking projects.
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“Although both managers and investors acknowledge that short-termism may be harmful to business, we provide clear, causal evidence of the harm in this research,” said Bansal. “Firms that offer long-term incentives for executives experience a higher share price right away and higher profits after one year. We discovered two important reasons: the firm invests more in research and development and invests more in stakeholders. Through this research, we are able to show that long-term executive incentives help the firm and helps society.”
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