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Encouraging long-term thinking

  • Nov 22, 2017
Encouraging long-term thinking

Caroline Flammer and Ivey’s Tima Bansal show that corporate short-term thinking and behavior is hampering business success. In their research they show clear, causal evidence that imposing long-term incentives on executives—in the form of long-term executive compensation—improves business performance. Long-term executive compensation includes restricted stocks, restricted stock options, and long-term incentive plans. Firms that adopted shareholder resolutions on long-term compensation experienced a significant increase in their stock price. This stock price increase foreshadowed an increase in operating profits that materialized after two years. They explain the reasons for these improvements in performance, and find that firms that adopted these shareholder resolutions made more investments in R&D and stakeholder engagement, especially pertaining to employees and the natural environment.

Flammer, Caroline and Bansal, Pratima (2017), “Does a Long-term Orientation Create Value? Evidence from a Regression Discontinuity." Strategic Management Journal, 38: 1827–1847.

Tags

  • Research
  • Faculty
  • Sustainability
  • Tima Bansal
  • Caroline Flammer