A new paper by Ivey researchers Tima Bansal and Caroline Flammer shows that, although costly in the short-term, treating company stakeholders well will pay off in the long-term.
The paper, called "Does Long-Term Orientation Create Value? Evidence from a Regression Discontinuity," is gathering momentum: it was recently accepted for publication in the Strategic Management Journal and also became the key topic in a blog written by London Business School Professor Alex Edmans.
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"[The researchers] find that proposals to increase long-term compensation improve long-term operating performance," Edmans writes. "Interestingly, operating performance decreases slightly in the short-run, highlighting the fact that long-term orientation requires short-run sacrifices. But, the long-run benefits outweigh the short-term costs."
Edmans outlines some of the highlights in Bansal and Flammer's paper:
- Innovation improves. Firms increase research and development, which leads to more patents, and both higher-quality and more innovative patents at that.
- Corporate responsibility improves, as measured by the ratings of four stakeholder groups: employees, the environment, customers, and society at large.