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Short-Termism and Corporate Myopia: The Values Assigned by the Market to Short-Term and Long-Term Firms

Short-termism and myopia on the part of corporate managers, analysts, and investors have created a business environment driven by the excessive focus on short-term results and the need to meet earnings targets at the expense of long-term value creation. These are accompanied by numerous consequences, including the potential for short-term-oriented firms, particularly in the U.S., to lag behind global long-term-oriented firms, as well as the potential for short-term mindsets in the corporate world to catalyze financial crises. In this paper, I demonstrate that the market generally assigns higher values to long-term firms rather than short-term ones. This is evidenced by the fact that firms characterized to be long-term according to various financial metrics have higher valuation multiples than their short-term counterparts. The results suggest that the market has a degree of sophistication that rewards investments for the future rather than earnings management and present gratification, and that the corporate world should therefore increasingly develop a long-term mentality.

Identiferoai:union.ndltd.org:CLAREMONT/oai:scholarship.claremont.edu:cmc_theses-2541
Date01 January 2017
CreatorsAlexander, Justin
PublisherScholarship @ Claremont
Source SetsClaremont Colleges
Detected LanguageEnglish
Typetext
Formatapplication/pdf
SourceCMC Senior Theses
Rights© 2016 Justin Alexander

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